The Guardian has something decidedly right in its editorial today, saying:
When running for the Labour leadership, Jeremy Corbyn wanted a “people's quantitative easing” to boost the economy. It was frostily dismissed in 2015 as being forbidden by provisions in the Lisbon treaty. If we leave the European Union, those strictures will no longer apply. This is not to agitate on the side of Brexiters but to observe that the quiver of the argument against printing money might lose an arrow or two if we leave the EU. In fact, the Bank of England, while the UK was in the EU, did print hundreds of billions of pounds to avoid economic disaster. At the push of a button, the Bank conjured up £435bn to buy up gilts — government bonds — and exchange them for bank deposits. On the national balance sheet this sum is listed as debt, but it is not in the strictest sense because it is not owed to anyone. Turns out there is a magic money tree.
The first link is to my work on people's quantitative easing, written before Jeremy Corbyn borrowed the idea.
As the editorial then noted, the great failing of quantitative easing was that the £435 billion printed by QE (which they correctly note cancels national debt) was used to effectively create asset price inflation in the financial services sector. The editorial has a specific target: it is to say that Andy Haldane's claim for the Bank of England that this has been of benefit is just wrong. But what the Guardian says next is just as useful:
Government spending, however it is financed, needs to be the main agent of recovery. In that sense Conservative ministers are responsible for the costs of the rescue being dumped on to the blameless public in the form of falling living standards and public-service cuts. The lesson from the monetary side of the equation is that low rates and QE succeeded in staving off disaster; but was insufficient to regenerate a buoyant and fair economy. This could have been achieved by a redistributive, expansionary fiscal policy which ministers were ideologically resistant to.
And ideology was key here: I hate to say it, but that exactly proves Howard Reed's point on economics. So what can be done? This is the Guardian's view:
Mr Corbyn's proposal became a national investment bank, financed by government bond issues, to invest in new job-creating industries. But Labour could have been more imaginative.
I agree! They could have used my original version and done what the Guardian notes:
Its plans could have seen the central bank instructed to hand over funds to a state body so it could buy services and goods without issuing debt. There are two objections to this: one is the Bank would have to pay interest on excess reserves, which would inevitably build up; or let its target rate fall to zero. Both occur today and are managed.
The second is hyperinflation. Yet all spending — government or private — carries an inflation risk. A future chancellor could commit to using fiscal policy to make sure nominal spending keeps pace with the real capacity of the economy to produce goods and services — and withdraw the stimulus if annualised GDP growth exceeded, say, 2.5%. These are dream figures: UK growth is expected to be 1.5% this year. It's predicted that there will be no wage growth in inflation-adjusted terms for the next two years.
As they conclude:
The lack of demand in the economy needs urgent attention. Enlarging the economy may need bigger thoughts than politicians have so far entertained.
In other words, people's quantitative easing gets the ball rolling, but the whole issue is much bigger than that.
Now let's get on with it.
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I suspect Nils Pratley is on leave and Larry Elliott’s Lexit affectations are not subject to the usual constraints and have infected the leader writers’ conference.
In principle the QE being proposed would be wonderful – for the particular groups of rent-seekers who would benefit. And there would be considerable overlap between these groups of rent-seekers and the rent-seekers the Tories favoured with their version of QE (combined with their ideological attempt to shrink the state and to create more space for private sector provision.)
Unfortunately, in addition, politicians who favour monetary financing and fiscal expansion tend to suffer from “deficit bias”. They find it virtually impossible politically to trun off the sending taps or increase taxes when a clear need arises to do so. And even though a central bank prepared to buy up any bonds issued in the absence of private sector demand would keep any bond vigilantes or disaster merchants in check, it may not be enough to restrain some of the currency traders.
What on earth are you talking about?
How would this form of QE encourage rent seeking?
I gather PH is thinking it would be used for asset-buying, as in Osborne’s QE, not for development.
That’s not what the Guardian intended
Nor did I
Rent-seeker is his word of the month apparently but he doesn’t quite know what it means. He should ask some of those “currency traders” that he refers to. BTW a good FTT might “restrain” them and some of the other authentic rent-seekers .
Oh dear. Almost everyone involved in an economic activity will seek to capture an economic rent, but not all are successful. Rent-seeking actually encourages competition, but only when the rents can be competed away. Of course, those who capture economic rents will do all in their power to sustain the capture of these rents. Probably the most assiduous rent-seekers are home owners with a mortgage paid off or close to being paid off who are sitting on a substantial unearned capital gain. This is a pure economic rent which will be captured when the house is sold. And they will do their damnedst to ensure this unearned capital gain will be maintained and ideally keep increasing. So it’s not just the robber barons, oligarchs and vulture capitalists who capture economic rents. Those who work for well-established companies, in the professions or in the middle and higher reaches of the public sector are equally adept.
Bearing this in mind, if or when there is a significant increase in public spending it will require an army of functionaries (from both the private and public sectors) to administer and apply this spending. It will inevitably create an irresistable honey pot for the rent-seekers. And please don’t tell me that those who administer spending authorised by a left-wing government wouldn’t contemplate a bit or rent-seeking.
So you would prefer existing bias?
Is that what you are saying?
“How would this form of QE encourage rent seeking?”
It wouldn’t.
It wouldn’t suddenly stop rent seeking activities, but it isn’t actively encouraging them. That is precisely what top down QE did do; there is nothing else to do with spare money except seek a return on it. Where it really is spare the holder can actually afford to lose it so it encourages high risk speculation on the promise of high returns which are well beyond what productive industry offers.
So we have spent ten years blowing bubbles. PQE is the only plausible way to prevent them bursting.
Is there anything the EU could actually do if the UK were to ignore the Lisbon Treaty and push ahead with PQE?
An ideal scenario from a Remainer’s point of view might be to somehow Remain and simply disobey the Lisbon Treaty, leaving the EU in a potentially awkward situation: would it want to be seen as suing a government, and punishing a population, for creating full employment in every constituency?
They might use state aid rules
Hard to see how when they are so breached so often though
And QE is tacitly accepted
Yes, I think Draghi may have already made the breakthrough there. I sometimes think the Lisbon Treaty may just be an excuse for opponents of PQE that can’t find a better argument.
The same “rules” (Article 123) had to be got round for Quantitative easing didn’t they? Objections claiming how that was somehow “…different” might prove interesting…
Marco Fante says:
” I sometimes think the Lisbon Treaty may just be an excuse for opponents of PQE that can’t find a better argument.”
Hold that thought. Rationally it has to be correct.
If the Guardian lis starting to print things like this it suggests that things are starting to move in the right direction. Suddenly they are more radical than Corbyn. I live in hope; we’re not there yet but first Redwood and now the Graun.
It would be good
It may just be Larry Elliott slipping in an editorial
If Larry Elliott has been the lead journalist in writing this editorial I’m shocked there was no sign of it coming. What on earth is going on in the Guardian investigation is urgently needed!
Eppur si muove!
“Eppur si muove!”
But for how long before the Inquisition gets wind?
Interesting that The Guardian ran an article, written by Libby Brooks, in the 28 February 2018 edition, indicating the SNP government in Scotland is already setting up a National Investment Bank, to be operational in 2020. So here’s another Corbyn policy the SNP–the not-progressive-enough party that Corbyn refuses to work with at Westminster to help defeat the Tories–is already putting into practice.
“The Scottish government has committed to a publicly owned national investment bank that campaigners and leading economists hope will tackle the country’s chronic lack of investment.
Speaking on Wednesday at the launch of the implementation plan, the first minister, Nicola Sturgeon, said the “truly transformative” measure would be operational by 2020.
Scotland’s first minister, who announced the idea in her programme for government last autumn, said she had already accepted several key recommendations from Benny Higgins, the CEO of Tesco Bank, who developed the plan. They include establishing the bank as a public body, that it should be ethical and inclusive, and that it should be “mission-driven”, funding big ideas such as the transition to a hi-tech, low-carbon economy.”
Jan Foley:
Ah, but Jezza wants to re-nationalise Scottish Water.
Says it all doesn’t it. ?
He wants to lead from a position that is already ten or more years behind the curve. And team Labour has a preference for leading from the opposition benches.
It has to be ‘YES’. But not quite yet.
“It was frostily dismissed in 2015 as being forbidden by provisions in the Lisbon treaty….”
It cannot be true that ‘Peoples Quantitative Easing’ is forbidden by the Lisbon Treaty. In reality it is probably a lie.
Since it does not yet exist it cannot be forbidden.
This is yet another case of EU regulation being blamed for what is mere political expediency.
If QE is allowable it is allowable at any point in the economic pile. Top or bottom, or mid range.
If QE is legal so is PQE
Quite !
Bill Mitchell has an interesting blog today, claiming that we are “On the path to MMT becoming mainstream” – he leans somewhat on the Guardian editorial for evidence.
http://bilbo.economicoutlook.net/blog/?p=39132
Grudging and not a hint as to whose work the Guardian article was based on
But that’s Bill
“Grudging and not a hint as to whose work the Guardian article was based on”
I regret I cannot (as a staunch monoglot) render this for you in the original Gaelic, but “if you seek praise, die.”
Patience, they say, is a virtue.
And virtue is its own reward.