I was fascinated to read this from Ambrose Evans-Pritchard in the Telegraph:
We are one shock away from global monetary impotence. The US Federal Reserve still has some dry powder to fight a slump. The British, European, and Japanese central banks have almost none, so long as they obey the prevailing orthodoxies of Homo Economicus.
He added:
The countries that survive the next downturn with a modicum of social cohesion and their democracies in tact will be those willing - or creative enough - to tear up the rule book and push fiscal stimulus beyond any historic frontier.
You read that right. His argument is:
Deficit ideology should be inverted. Governments should be made to explain - if and when we again have pervasive slack in the economy - why they are not taking on debt at no cost for urgent public investment. Investors are pricing in a deflationary liquidity trap far into the 2020s. They are willing to pay the Portuguese state to look after their excess capital for five years, or France and Japan for ten years, or Germany for 16 years. Britain can borrow for half a century at 1.33pc. Nothing like this has ever been seen before.
His logic is sound. It is this:
The relevant question is whether public investment projects have a ‘multiplier' above 1.0 and therefore pay for themselves over time though higher economic growth.
And he notes:
The OECD said (in 2016) a 0.5pc boost to GDP from extra investment would lift Britain's output by 0.6pc, and cut the debt ratio by 0.2pc over the next year. The multiplier would be much higher in a deep downturn.
Having made his case he gets political:
The incoming Tory leadership has a chance to break free of bean-counting and the Treasury View, so cursed by Keynes, and prepare the ground for the most radical fiscal experiment of any country in the world. They can do it productively with good debt or let Jeremy Corbyn do it his way with unproductive bad debt for neo-Marxist class war and social transfers to pet causes. This may require recruiting the Bank of England for ‘investment QE' - as opposed to Corbynista ‘People's QE' - casting aside yet another shibboleth and embracing the doctrine of fiscal dominance, a necessary evil in unprecedented times.
As the creator of Corbyn's People's Quantitative Easing I can say with confidence Pritchard-Evans has my version wrong - unless he thinks investing in the Green New Deal a new-Marxist class war issue.
His hyperbole is just wrong. This is what he says:
Plain vanilla QE has runs its course. It was a lifesaver after the Lehman crash but the cost/benefit calculus has been deteriorating ever since. It inflates asset prices and promotes inequality, for little economic return.
The IPPR proposes a national investment bank akin to the German KfW, created under the Marshall Plan in 1948. KfW raises bonds under Germany's AAA rating for development loans worth 2.5pc of GDP each year. Its €485bn book is not treated as public debt by rating agencies.
The Bank would buy the bonds as needed in any future QE. It would inject the stimulus directly into the veins of the economy through public works. The bonds could be sold again later to drain excess liquidity. This is how quantitative tightening has been working in the US.
The reality is the bonds will never be sold again: the point is inconsequential. What is relevant is that he appreciates that there is a real need to do this:
The Treasury's National Infrastructure and Construction Pipeline says the country needs to spend £190bn by 2020/2021 and £600bn over the next decade on 700 projects. These range from flood defences, to railway electrification, full fibre broadband, 5G networks, renewable energy, space technology, research on advanced materials, beamless light, or semiconductor catapults, as well as smart motorways, super sewers, and social housing. Half is to come from the private funds.
I would not be doing smart motorways. And maybe not 5G. But the rest? Get on with it. Or, as he notes:
“The projects should be lined up like planes on a runway,” said Richard Abadie, an infrastructure expert at PwC. The quickest option is to flood local authorities with money they desperately need to fix potholes and repair crumbling schools.
To which he says:
In my view, we should pull the trigger now. .... The Government should assume that the world will be in recession by early 2020. This may combine with the short-term shock of a WTO-Brexit. The proper insurance policy is to pre-fund and pre-launch a £100bn blitz of needed infrastructure spending, targeting those projects with the highest multiplier. .... This may be our survival card when China and the US slide into recession and take the rest of the world with them. History can move in strange ways.
I long ago said that George Osborne would do People's Quantitative Easing before Labour did. It looks as though my idea is alive and well and living in the Torygraph.
It's a strange world. but it may explain how Johnson and Hunt plan to claim they'll balance their books. They'll be taking investment off-balance sheet.
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Such a shame he couldn’t resist the temptation to make a cheap (and inaccurate) political point by bringing Marx into his recommendation. As far as I know he has no formal economic education so you’d have thought he’d would have done a bit more research before submitting. All he had to do was to email you, lol! According to his Wiki entry he has been ‘a long-time opponent of austerity policies in southern Europe and critic of monetary union’, which I guess is a step in the right direction. But political dogma always gets in the way of progress, from whichever direction it emanates.
Hi Richard,
What about building a proper transport infrastructure…one that is cheap to use and goes where you need it to, including cycle super highways everywhere. Surely that’s the real transformation that is needed to make a car redundant for many??
There are billions pouring into electric cars and for what?? To make a small dent in emissions and all you end up doing is swapping one type of car for another with zero impact on traffic jams, never mind where the power source is going to come from to generate said electricity and the environmental impact of extracting the precious elements needed to make the power batteries…..
I have no option but to drive to work because the public transport is non existent, and I don’t cycle (though would love to) because the roads are so dangerous that I don’t wish to risk my life being a father of three.
Taking cycling as an example, I lived in The Netherlands for 2 years and it was incredible to see what happens when you invest and provide a proper and safe cycling infrastructure, and not some stupid painted strip on the road or shared footpath token effort like most councils do here. There is also the positive impact on the health of the individual.
It really is not rocket science….me thinks sometimes that there are powerful forces at play that don’t want this stuff to happen ..
Rant over
Robin
Rant welcome
One swallow does not a summer make, but, to mix in another metaphor, this is an interesting straw in the wind. Right-wingers, with any modicum of intelligence, always knew how money is created and destroyed. They just wanted it tightly controlled to protect and advance their interests at the expense of everyone else and to prevent it being spent on people they didn’t like or on those they believed didn’t deserve it and, particularly, by those who would damage their cosy rent-seeking cartels.
Acquiring and then retaining political and economic power is all that matters to this class and if spraying money around on infrastructure projects is what is required then they’ll do it. Capitalism and the power structures that support it mutate faster than the best-intentioned left-wing schemes to shackle it, bypass it or suppress it. left-wingers are always stymied by their visions of what should be, rather than focusing on what is happening. And they always end up fighting the last war. Some, like the current Labour high command, are fighting wars from long ago.
It reminds of Kevin Johnson:
https://www.google.co.uk/search?source=hp&ei=ZNcUXZ3wDIbYaIm3lvAI&q=rock+and+roll+i+gave+you+the+best&oq=rock+and+roll+i+gave&gs_l=psy-ab.1.2.0l7.1315.5053..11179…0.0..1.226.1647.19j1j1……0….1..gws-wiz…..0..35i39j0i131.Bs6Yk3cS_kU
I fear you are right about Labour
The focus has to be on Labour because a majority Labour government is the only means of addressing the mounting crises this country faces in any meaningful or effective way. The voting system for the Commons is not going to change between now and the next election – whenever it happens. However, those closest to Jeremy Corbyn who exercise power and influence seem to be consumed by Brexit and operating under at least three delusions: (1) Brexit is required not only to satisfy the 2016 referendum result, but also on its perceived left-wing merits (vote no to the bosses’ EU), (2) the implications of a hard Brexit can be pinned on the Tories, the Commons will vote no confidence in the government and grateful voters will rush en masse to elect a majoirty Labour government, and (3) a Labour government would be able to negotiate a softer Brexit with the EU. But they can’t enforce these delusions on the membership or the majority of the PLP.
However, with this continuing Brexit mess (and with the exile of those who should be in the shadow cabinet participating in policy formulation) it appears that John McDonnell is almost singlehandedly driving economic policy. And so we have this ill-thought through renationalisation of the energy and water networks, some vague democratisation of energy supply at the local level, the proposed acquisition of 10% of the equity of companies employing more than 250, the delisting of companies failing to achieve climate change targets and giving the BoE a productivity target when applying monetary policy.
And Labour remains locked in to the Portes/Lewis-Wren Fiscal Credibility Rule which maintains the dominance of a failing conventional monetary policy and allows fiscal policy supremacy only in extremis when the times require the dominance of fiscal policy.
If there is a snap general election (and there is a high probability) Labour could very easily end up trying to sell these inane policies to the public. Couple this with the Tories relying on Boris Johnson to bring Brexit Party supporters back to them (a deal with Farage is not out of bounds for Johnson) and with resurgent Lib Dem and Green support and we’ll have the worst of all possible worlds.
You demonstrate just how un-joined up the thinking is
We can’t have this! All that public spending will crowd out private investment and depress the animal spirits of the entrepreneurs who create all our wealth!
Er…….
If the Tories “get” MMT (of sorts) before Labour, shouldn’t we vote for them?
You also said that PQE was neither Left or Right since is was not orthodox. It is just sensible.
Looking at the state of country as it is now, PQE is creaming out to be done.
I`m quite happy to have the Tories in power as long as they are enacting socialist policies. As the blessed JC says ` it`s the policies, not the personalities`. Putting up with oiks like Evans-Pritchard is a small price to pay. Dream on….
“The relevant question is whether public investment projects have a ‘multiplier’ above 1.0 and therefore pay for themselves over time though higher economic growth.”
To some extent this question has been answered by this report “Does investment in the health sector promote or inhibit economic growth?” – the multiplier was in the range 4.3 (for health) to -9 (minus 9 !!) for death & destruction (aka “weapons”). For average gov it was 1.6. So far, so peachy.
Some investments – such as renewables – need little/zero subsidy and usually have a good business case – which raises the question: why does the gov not take a direct stake. Actually – they do – it’s just not the Uk gov – but the Danish gov (Orsted) and the French gov (Edf) etc. Uk citizens can thus console themselves with the thought that the money they spend on electricity is going to a good cause: the well being of Danish and French citizens. Markets – doncha love em! – bravo to the Tories – making sure that UK citizens help those that are less well off …oh er hang on a sec……… (& unlike the emissions of Johnson – these jocular points are all, sadly, true).
One wonders with the current politico crop (both sides) if they have any clue at all.
None at all…..ask them what a multiplier is