Last September I idly mused on what George Osborne might call People's Quantitative easing when he introduced it. I did not do so for effect: I did it because I thought he would use my idea.
We now know I was wrong: in George Osborne's remaining time in office he only appears able to think about tax cuts, which I can say with confidence are the last thing this country needs.
One of those who wishes to be his new party leader is, however, thinking along quite different lines. The BBC has reported that:
Tory leadership contender Stephen Crabb has pledged to create a £100bn "Growing Britain Fund" if elected.
The work and pensions secretary said the infrastructure investment fund could finance essential projects including flood defences, a national fibre-optic broadband network and Crossrail Two.
The money would come from issuing new government bonds, Mr Crabb said.
Bond yields have fallen since the Brexit vote, lowering borrowing costs.
"The cost of borrowing is incredibly low. Spending government money on infrastructure has therefore never been more affordable," Mr Crabb said.
First, full marks to him: he's right.
Second, I agree that this is not QE: this is old-fashioned borrowing at zero effective cost, but I've never denied the importance of that (indeed, I have called for it) and anyone who understands QE realises that issuing bonds is the first stage of the process.
Third, this proposal blatantly borrows from the idea of a National Investment Bank which was at the heart of the People's QE proposal.
I do accept that it is very unlikely that Mr Crabb will, in practice, become the Conservative Party leader. It could, therefore, be said that he can say whatever he likes without any risk of having to actually implement the policy (which, it seems that every politician does that right now; they simply resign when they have won). I do not, however, think such cynicism is appropriate in this case: whilst I am certainly not endorsing any candidate for Conservative leader, I am definitely saying that this is credible economics, is in the public interest, and would be a benefit to the UK economy.
I very much doubt that I could say the same thing of all of Mr Crabb's policies, in which case those who really want to see change for the better should wake up and realise that their ideas are being used.
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It is dispiriting that the concept of QE is only employed to prevent growth from falling. We are told that another £250 billion of cash can be found to buy from investors the investments that already reside on their balance sheets; the theory being that the investment sold to the BoE is replaced by cash which then encourages the investor to go out into the market and purchase new investments (thus restoring their balance sheets to the previous net asset position. I say theory because, prima facia, this sounds like a financial merry go round.
So £625 billion, the equivalent of one years tax and other receipts, can be used in this opaque way in a negative economic context whilst to use this cash to create assets having a positive economic return we are told would be irresponsible.
Added to that seven years of austerity has led to/ will lead to austerity being jettisoned as we face an unknown future outside of Europe, what where the sacrifices for?
I noticed this yesterday too. Thank you for the education Richard. I smiled to myself as I read it and thought, “now that sounds familiar”.
Very interesting, honest and balanced.
It makes you think more about the real composition of political parties (I remember reading ‘Dancing with Dogma’ which made me realise that the Tory party was not all full of rabid Thatcherites – a number of them seemed to take the responsibility of governing and Government seriously – but they were not powerful enough to steer the party).
It is a shame that the Tories have fallen victim to neo-lib dogma and even more of a shame that New Labour tries to pinch their swing voters who are attracted to it.
On top of this, I watched Keith Vaz interrogate Corbyn the other day and I could not help but think there was something wrong about a man who had flipped his properties and was implicated in the expenses scandal questioning another politician about how he runs his party.
Then Umma makes some disparaging comments about Momentum – a movement that is less opaque than the Blairite sofa management that led to the party turning its back on it’s more working class roots who eventually fell into the arms of UKIP and also maybe BREXIT.
Then Vaz introduced the Hezbollah and questioned Corbyn’s relationship with them . Did he use the words ‘our freinds’? Are we to believe that a man like Corbyn who was arrested for demonstrating for the release of Nelson Mandela and has always backed anti-racist causes, when others (like Mrs Thatcher has called Mandela a ‘terrorist’ and invited Pinochet to her home) have not. The EU and UK make a distinction between Hezbollah as a political movement and their military wing. We had the same split between Sinn Fein and the IRA. Some who pressed for talks were accused of sympathising with terrorism. We can now say, they were right.
Livingstone’s remarks seems to have been a clumsy response in a discussion, not a considered view. I think, one has to interpret a lot to see it as anti-Jewish. There is a distinction between being against Zionism and hating Jews for being Jews. If such negative statements had been made about Arabs, i doubt if there would have been a Parliamentary hearing. I would condemn any anti-Jewish statement but the whole discussion got, in my opinion, close to double standards.
It has to be good for democracy that the Tories themselves are slowly chipping away at Osborne’s daft policies. Slightly embarrassing for the Osborne-admirers in the Labour Party, though.
‘anyone who understands QE realises that issuing bonds is the first stage of the process.’
QE was a bond purchasing operation by the Central Bank of EXISTING bonds . If I’ve got it right, the so-called peopled QE would create bonds with the INTENTION of the Central Bank buying them back.’ There’s a big difference there.
This will involve are certain amount of mutual back -scratching between BoE and the Corporate world, which I personally find distasteful even though it is the only legal way at present.
When bonds are bought back from the secondary market there needs to be inducement to sell, creating what Bill Mitchell calls ‘corporate welfare.’ Making rich people richer (by doing nothing of social value) in order to have the privilege if infrastructure improvements might be the only legal way of doing it at present but it is hardly a method we should benignly accept for the future.
I think it raises a lot of interesting issues about how infrastructure spending is delivered.
Firstly my initial thought was that Stephen crabb did not really have any credibility to call for £100bn in investment spending given that the Tories have been so bad at delivering it previously despite various announcements.
Secondly it raises the question of what gets spent on. Eg.
It’s good that they included social housing in there, but spread over so many projects, 100bn doesn’t go very far.
Thirdly Eg. Cross rail 2 is only a couple of years from being started anyway so some of the 100bn sounds a bit like double counting.
But fourthly, also the specific delivery and funding model ie. Will it be essentially private sector delivery or will the money be directly spent by the state on the projects. Will local authorities get funding for building schools or will it be for academies etc.
We don’t know: his details were sparse
But they are good questions
And if he wanted to boost the economy he should have started with smaller projects deliverable quickly. That includes repairs
Whilst doing further research on Chris Cook’s comment on another article in this blog I came across this short but to the point article which helps put the People’s QE idea into better historical perspective albeit that much of the tally version of PQE spending of the time was probably skewed towards defence or war-lordism:-
http://wiki.p2pfoundation.net/Tally_Money
Thanks