We can deal with a new recession

Posted on July 15 2019

The Guardian reports this morning that:

Britain is facing the highest risk of a recession since the financial crisis and needs urgent plans to combat the next downturn, according to an alarming assessment of the nation's economic health.

Preparations need to be made to reduce the impact, the study by the Resolution Foundation thinktank warns. It states that both uncertainty around Brexit and the global economic slowdown have led to the highest recession risk since 2007.

I happen to agree with that, an so do many commentators from Mark Carney at the Bank of England onwards.

What I do not agree with is this:

James Smith, its research director, warned against complacency. “Policy-makers can't prevent recessions from happening, but they can limit their damage with the right policy response. The problem for the incoming government and the Bank of England however is that many of the tools used to fight the last downturn — from big interest rate cuts to £375bn of QE — are either spent or severely blunted. So whether or not a downturn starts in the near future, planning for it certainly should.”

So what?, is my point with regard to this. The recession we will have now is not the same as we had in 2008. And the answer has to be different.

As the FT noted in 2015:

Mr Murphy said on Thursday that people's QE would be essential by 2020 because the economy would probably have taken a battering by then. “ China's currency devaluation is likely to export deflation, to prick the housing bubble and to prick the investment bubble,” he said. “But if it is not China, it will be something else – there are significant other problems which the chancellor is doing nothing about.”

And yes, it is China now: it has just reported its lowest growth in 27 years. Admittedly, I did not allow for Trump, but I covered the risk.

And the answer I gave then - of people's QE - is still the answer now. We have no need to have a recession: all we need is a government that understands how money works and how it can intervene when markets do not deliver. People's QE as always designed to deliver that, and it will. Why is it so hard for people to say so? Including Corbyn.

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14 Responses

  1. Pilgrim Slight Return says:
    July 15 2019 at 10:08 am

    Did you watch Louis Theroux last night and his documentary about a church congregation (Westboro Baptist Church) in America who are infamous for promoting homophobia and other hate filled ideologies?

    One of the daughters (Megan) who left the Church speaks out at the end of the documentary about the problem being the persistence of bad ideas in society. It is right at the end of the documentary and is well worth listening to – she’s very eloquent.

    I mention this because James Smith above is someone else who subscribes to pretty some bad and ‘sticky’ ideas too it seems.

  2. larry says:
    July 15 2019 at 10:50 am

    PSR, re James Smith, could you elaborate? I admit I don’t know much about Smith.

    • Pilgrim Slight Return says:
      July 15 2019 at 4:31 pm

      Larry

      Why would James Smith be saying this about QE?:

      ‘The problem for the incoming government and the Bank of England however is that many of the tools used to fight the last downturn — from big interest rate cuts to £375bn of QE — are either spent or severely blunted’?

      This man ignores the fact that previous QE was into the banking sector – not the wider economy. He also ignores the fact that basically the Government CAN print more money and this time feed it into the economy through People’s QE or Green QE (GND). Or both. He is failing to take into account other routes that could be used into the economy for QE and the different (and more effective) results that might result.

      He also seems to be suggesting that the £375bn is a hanging debt on the Government that retards more investment. This is baloney. If the Government spent another £375bn into the general economy, the tax returns would bloom and so would Government income – not to mention households. There would be a return. What sort of return was there when money disappeared into the banking sector the first time?

      His comment about the interest rates is a joke, because this Government – despite the lowest interest rates in history – hasn’t even bothered to borrow to support pre-crash levels of spending or investment even if the Government didn’t want to print the money. ‘Blunted’? How can you blunt something that has not been used? It’s preposterous. The low interests rates have not been taken advantage of.

      To me James is just plain wrong and his viewpoint to me is based on the sticky bad ideas about Government money that still now hold us back from delivering a fairer society and ending unnecessary punitive austerity we have suffered for far to long.

      Does that help? And yes, there might be inflation – but nothing that a good tax system could not deal with.

  3. David Scott says:
    July 15 2019 at 11:44 am

    The key elements of PQE seem to be the government increasing spending by quite a bit more than it has coming in from tax receipts, financing the extra deficit by essentially printing money ( although it goes through a triangle of the BoE and the bond markets ) and then using government people to allocate the funding to subsidies and programmes they think is best for the economy.
    There should be some data available on how this has worked so far compared to the alternatives.

  4. Andrew (Andy) Crow says:
    July 15 2019 at 12:45 pm

    David Scott says:

    “The key elements of PQE seem to be the government increasing spending by quite a bit more than it has coming in from tax receipts, ….”

    Well, yes. Bail-out and QE proved very effective in rescuing the entire banking and finance sector from what was all set to be an imminent global meltdown. So we know the principle works. We also know that without offsetting tax arrangements the result was massive inflation in asset prices. We also know this process, when confined only to the top end financial sector, does very little to stimulate real productive economic growth. Quite the contrary in fact.

    For those who persist in believing the ‘tax and spend order’ of priority, the only sensible course is to heavily reclaim through taxes the excess which is now lodged in asset wealth. We all know that isn’t going to happen, so the only alternative is to boost the productive economy from bottom up. This is essentially what A Green New Deal, and a form of PQE offers, with the additional benefit that it will go a long way (if properly approached) to wean us off our addiction to fossil fuels – it is stupid to keep wasting this valuable irreplaceable resource by burning it particularly given the damage it is doing to our atmosphere and environment.

    The bailout of the 2008 GFC was entirely predicated on an underlying belief in the nonsense that is ‘trickle down’. That senior figures in government and banking should have been fool enough to buy into this without seeing the folly is almost beyond belief. It is so far beyond belief that I, for one, don’t believe it.

    Of course we could bail out the banks and financial asset-rich again after the next crash. Precisely the same financial jiggery-pokery can be effected as following 2008, but really, what is the point while the biosphere and the real economy withers? It looks uncannily like a death spiral, if not for the planet, at least for the bulk of humanity.

  5. Ian Sanderson says:
    July 16 2019 at 8:53 am

    Totally off-topic, my apologies…

    WELL WORTH WATCHING….

    https://m.youtube.com/watch?fbclid=IwAR0PLF35u1QK_Nos55CpmI4V5f_37A3NAi4hqO_Xo8tShB2Zvhscutk0_eo&v=oh4xPvRR2oA