The question of inflation is coming up time and again in the Labour leadership election. Yvette Cooper is certain that People's Quantitative Easing will lead to a mass outbreak of hyperinflation in the UK. It's time to address the issue.
First, some general background. PQE is simply a way of injecting money into the economy. Such injections have happened before: £375 billion happened from 2009 to 2012. The US has only just stopped its QE programme. Japan is still doing one. The EU is near the start of a €1-trillion programme. Money printing is normal. There has been or will be about ¢5 trillion of it over a relatively short period.
And around the world there is almost no inflation. After QE the UK has got to zero inflation.
Japan would love inflation but can't manage it.
The whole point of the EU programme is to create inflation, and many doubt it will.
In the US the inflation rate is 0.2%.
What is more, as the FT reports this morning, a Boston Fed official with some influence is today reporting that the Chinese slowdown is already making him doubt that the US can reach its 2% target inflation rate anytime in the foreseeable future. I have some considerable sympathy with that view. In fact, let me summarise what almost all the world's central bankers are looking for right now: it is a magic bullet that might create the inflation that they want.
So the question has to be asked as to why they can't get it? The Wall Street Journal raised this question last week. As they noted:
Central bankers aren't sure they understand how inflation works anymore. Inflation didn't fall as much as many expected during the financial crisis, when the economy faltered and unemployment soared. It hasn't bounced back as they predicted when the economy recovered and unemployment fell.
As they then note, this is a massive issue. If you can't predict inflation then what is the point of central bank independence which is all about controlling inflation as if it is the only task of significance in an economy? What if, in other words, all the priorities are wrong and for reasons central bankers and some well-trained economists (like Yvette Cooper) don't understand inflation simply is not the threat it was? And in that case what new policies are needed?
Let me explain why I think the inflation conundrum exists i.e. why we can't deliver the inflation we want.
First, it's because inflation measures are measuring the wrong things. We have had massive inflation in asset prices, for example, many of which have real impact on well-being, but asset price inflation is not included in our inflation measure.
Second, some inflation measures fail to measure the right things. So, for example, in the UK there is a current belief that we will have inflation soon because we supposedly have wage inflation right now. But firstly, that is wage inflation after eight years of decline and with GDP per head only at pre-crash levels. And second, this measure might be hopelessly inaccurate. That's because it excludes the earnings of the at least 5 million UK self-employed, who we know have had seriously declining income. That decline may be enough, given their number and the relatively small increases in wage growth to neutralise that wage increase impact entirely: the reality is that this measure of apparent inflation might be completely wrong.
Third, what the decline in self-employed earnings shows is that inflation risk is being outsourced: it is now passed on to some elements within a profoundly deregulated labour force, many of whom are suffering unrecorded real earnings decline of such extent that they are in poverty, but so destabilise the rest of the labour market by accepting any offered pay rate (which rates are beyond the control of minimum wage regulation) that any amount of upward pressure on prices can simply be externalised into this unmeasured pool of labour meaning that anticipated inflation outcomes simply do not happen.
I stress, I am speculating. But let's suppose across 25 million workers there is a 2% pay rise and across 5 million self-employed people a 10% wage drop (which is not impossible) then there is no net wage inflation at all: the wage rate data is just wrong as a result because it is missing an important variable that did not matter at one time but is now deeply significant.
In that case the amount of inflationary pressure in the UK economy might well come back to being effectively nothing at all, whilst we have at the same time unemployment, under-employment and a stark need for real investment which is the only way to boost earnings growth for those most in need of it, which is the only true economic goal a Treasury and a central bank should have. But because of poor inflation measures, poor theory and poor appraisal of why we do not have inflation at present, when if theory was right we should, we are denied that possibility of investment for the common good. I find it deeply frustrating that adherence to economic thinking that is obviously past its sell-by date should be used to oppose necessary ideas for reform that could massively benefit the people of this country.
Yvette Cooper is an able person. She seems to have read Keynes. She would be wise to recall his maxim that:
Practical people who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.
I fear that may be the case.
It is time to move on. There is no inflation risk right now. PQE probably will not change that: if it did then without major labour market reforms the impact would be modest, at best. But many wish for even that modest inflation impact, and most of them are central bankers. Yvette Copper should take note.
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What about houses? If the price of a house goes up 5%, that accounts for a lot more inflation than if baked beans go up 5%.
Also, this is the flaw with aggregate economics. Inflation is hidden by the averaging process. It does not mean inflation is not happening just because deflation is also happening in other areas. Someone buying a home, sending their children to university and paying for old age care for their parents will have a massive inflation rate.
“Money printing is normal.”
Money printing is not normal. Very little money is printed because we invented cashless cards. Our opponents saying ‘print money’ are being deliberately pejorative, and are clearly out of date in their thinking and beliefs.
Creating money is normal. It’s what banks do every day. Every time they make a loan. And since government acts largely like a bank overall it is normal for government to *create* money too.
Language matters…
Sorry Neil: printing is itself a metaphor
I stick by what I said
It is a metaphor that conjures images of black and white carts full of cash and so helps to keep the narrative firmly wthin the neoliberal framework.
The metaphor is out of date and should therefore be avoided.
OK
I will think about it
I wouldn’t worry too much Richard I think that the objections to the “printing’ analogy are a tad too righteously (and pedantic).
Yes…I think Bill Mitchell’s point about ‘reframing’ language is important. Philosophers like Nietzsche and Wittgenstein were occupied with how we are ‘cuaght in the net of language’ and how language colours perception.
Richard-it might interest you that the early Quakers were very much concerned with the way language distorts things (not in modern academic language of course) and there is a very good book about it called: ‘Let Your Words be Few’ (http://www.amazon.co.uk/Let-Your-Words-Few-Seventeenth-Century/dp/1604941855)
Feel free to delete the latter part of this as it’s more of a ‘personal’ message to you!
Bill Mitchell on its usage (vis-Ã -vis vanilla QE)…
Heard that
Noted
Created from now on
How can Cooper ‘worry’ about supposed inflation caused by PQE which hasn’t actually happened yet (I hope it does) when one is surrounded by evidence of the inflation of asset prices happening now caused by the availability of credit (look at housing and the mortgage industry) and the gravitational pull that has on the pricing of every-day goods and services?
You are spot on in suggesting that the wrong things are being measured and are also not being measured holistically (how these factors interact with each other).
As for Cooper, although I find her likeable, her adherence to dodgy economic thinking is indicative of the central problem we are facing: we all know something is wrong but our politicians are incapable of providing an alternative.
We are just meant to accept that this is the way things are.
Surely we can do better than this?
Politicians have to appear to be nice [some of the time] to get elected but it’s easy to hide ignorance. As they say, you can get away with being ignorant if you’re not arrogant; or arrogant if you’re not ignorant – but if you’re both you’re knackered!
but if you’re both you’re knackered!
Osborne/Cameron et al seem to manage this dilemma quite well!
On Cooper’s “adherence to dodgy economic thinking”, here’s the reason why…
Steven Hail, University of Adelaide & Richard’s co-signatory in the open letter to the Observer supporting PQE
https://www.facebook.com/green.modernmoneytheoryandpractice/posts/871341672948977
So true
Please keep banging the PQE drum Richard. It makes sense. We certainly need inflation to help me pay down the huge personal debts we have. We cannot be hamstrung by the neo-liberal opposition to money printing.
No inflation? Stock exchange prices raised. House prices raised, pumping up asset values for the haves, Petty aspiring , some might be vulnerable to a downturn. It creates loads of money for the Have Lots. So it goes? This manuver was planned to be timed for the election. It was a gamble , will the wheels come off? Interesting times. Some people are hurting and if things go wrong many more will be hit.
That kind of inflation is GOOD though, Anthony. Wage inflation is BAAAAAAD!! 🙂
The massive rise of house prices is of course inflation caused by a shortage and massive demand for housing. but the middle class just love that kind of inflation, and the financial sector just love the massive inflation in asset prices and the stock market even though it is in a bubble and will come crashing down eventually.
“The massive rise of house prices is of course inflation caused by a shortage and massive demand for housing. ”
Not totally, Stevo as the banking sector increased mortgage lending by about 370% during the decade leading up to the Crash inducing buy to let crazes-and this is itself a major wrecker of the economy but no politicians talk about it, instead the narrative is the feckless poor have caused the housing benefit bill to go up!
Let’s not forget that foreign buyers are using upmarket London property as an asset class now (along with staples like art and gold) and are parking their money in it. That’s had an effect too and that effect inevitably spreads outwards.
Paul Krugman says a lot about the claims made by conventional economists and politicians on the Right in 2009 that QE would lead to a Weimar situation and how they were wrong (and he was right). Again it shows who really does and who does not understand the economics of the modern world.
Wealth concentration – progressively worsening inequality – suppresses both consumption and production.
Where’s the inflation in that?
You do get asset-price bubbles, and these can feed back into inflation through rising rents on business and residential property.
That, and the apparent price inflation of monopolies (which are deflationary overall) are all the inflation there is to be seen.
Agreed: a valuable additional point
This argument needs to be strongly and robustly made on the MSM by the Corbyn team pronto as the twitter responses to Cooper’s jibe about PQE being PFI on steroids has apparrant gone done well.
On the subject of Cooper the assumption of ableness in economics, given she is married to Ed Balls, suggest two possibilities. Either she is stuck in a time warp on these matters and does not have a clue or she does realise this is the case but is individually and collectively so personally invested in the neo liberal project that she really does not give a shit and her whole approach is based on not allowing any alternative narrative to gain a foothold.
The C4 debate was also interesting in showing Cooper’s tactics of patronising Corbyn and demonstrating her total loathing of Burnham. You could see it in her face every time she looked at him and when he spoke. I’m not sure Burnham has picked up on this but of the four he and Kendall looked by far the weakest. This contest is between Cooper and Corbyn and Corbyn ‘ s team need to get out of the blocks fast on this issue.
Noted
I suspect hubby [Ed Balls] knew what was needed but didn’t dare utter it in public for fear of being branded “spend-thrift”!Read between the lines on this: http://www.3spoken.co.uk/2014/12/how-to-eliminate-uk-deficit-trick.html
Clearly then it’s between the principal neoliberal and the only anti-neoliberal. With the Greens offering to share a platform with Corbyn, the battle lines are forming as predicted. Good!
This is a good point-the Corbyn camp need to start the reframing PDQ as Coopers main weapons seem to be wheeling out the old ‘variations on a theme of Weimar’ argument.
You are the man to do this -Richard!
It is a tad ironic that in the current edition of The Economist which includes its piece that attempts to trash Corbynomics there is also a piece lamenting the major shortfall in infrastructure investment in the advanced economies and highlighting both the current historically low cost of financing this investment and the significant economic benefits it would generate. I’m still going to bang my drum that the initial focus should be on separating capital and current expenditure in governments’ accounts. This would totally undermine the current deficit obsession and reframe the debate about how badly required investment can be financed.
With regard to your observations on inflation, there is a further point. Participants in financial markets focus on percentage changes in overall price levels – that’s how we measure inflation – at the margin. Most households and small businesses are more concerned about the level of prices. For example, if energy prices increase significantly – as they have done for the last few years – households and small businesses will have to to take the hit (though there will always be some political blowback), but some measures of inflation used by the policy makers will strip out the impact of these price increases. However, even if changes in these prices are included subsequent limited changes will have little impact on overall inflation, but households and small businesses will still be paying prices close to the previous high levels. This is just one example of where reality deviates from the economists’ and policymakers’ models.
Finally, the increasing pressure on central bankers to generate some inflation (which you highlight) could very easily lead to finance ministers and central bankers coming up with a variant of PQE. Except that it would be dressed up completely differently to prevent critics of the current failed orthodoxy gaining any kudos. In the UK, with some external support, every effort would be made to deny it resembled Corbynomics in any way.
But most ordinary voters would see what was going on.
Thanks Paul
Will be blogging it
Thank you, Richard. I look forward to that.
As a further point, in my view it’s also important to distinguish between the funding and the financing of investment. In broad terms citizens and residents as consumers and taxpayers ultimately fund all economic activity (assuming that the funding of imports broadly matches the funding of our exports by foreign consumers). Changes in perceptions about the willingness and ability of citizens to fund economic activity (and about the ability to capture a share of these funds) impact on the “animal spirits” described by Keynes and the resulting enthusiasm of the private sector to invest and to secure finance for this investment.
When one narrows one’s focus to the utility and infrastructure service industries the willingness and ability of citizens as final consumers or taxpayers to pay for these services provides an almost cast-iron guarantee of investment recovery and, as a result, finance should be available at a low, risk-related, cost of capital. But we’ve seen how the private sector has used PFI to exploit governments (and ultimately taxpayers) determined to remove public capital spend from the calculation of fiscal deficits and surpluses simply because governments persist in using “tennis club” accounts.
In addition, competition in the provision of some utility services has broken the link between the almost unlimited willingness of final consumers to pay for these services and the investment recovery guarantee it provides. Competing suppliers relying on network services to serve their customers will not be prepared to contract and pay for network or production capacity on a long term basis. As a result they and private sector providers of network capacity will demand an excessively high cost of capital and a strong guarantee of investment recovery before they invest in the required production and network capacity respectively. Continuous and inconsistent government interventions compound the problem. The outcome is a shortfall in investment and an excessively high cost of financing the limited investment provided (including badly targeted subsidies). The electricity and gas sectors provide the most egregious examples. But renationalisation may not be the answer.
The focus should be on relinking the commitment of citizens as final consumers and taxpayers to pay for utility and infrastructure services to secure least cost financing of investment. So-called PQE obviously has a role to play in this, but establishing a statutory collective buyer for final consumers in the electricity and gas sectors also has a role.
Might be better sold a Murphynomics – hopefully without much of Corbyn’s [alleged and apparently] misguided take on defence.
It occurs that Osborne’s defence tactics, necessitated he suggests by austerity, consisting of less armed forces and more Trident, aren’t so much about actual defence as they are about doing away with those who might ably oppose his autocratic rule. So, remove the police and the armed forces, replace them with private companies loyal only to their paymasters, and there’s your defence policy. It appears to be just himself and his posh chums he’s interested in defending. If Corbyn’s moving in the opposite direction and needs to create money to fund it, well, good for him!
So far as I can see the focus on inflation is nothing but a smokescreen for increasing inequality.
The narrative for 3 decades has been “inflation is a bad thing, and a very important thing: so all policy is directed to its control”
At the same time the same people have told us that “inflation is a really good thing”: but of course only when talking about the price of a house or a stock.
We have been invited to hold both ideas simultaneously, and it seems we have broadly acceded to this double think. Not a lot of reflection there.
From my point of view inflation is not demonstrably a bad thing, and given that there is an inflation target of 2% or so across many countries that is also the view of those who apparently make policy: but we are not expected to notice.
We are also not expected to notice that the idea that full employment (the goal abandoned in favour of inflation control) causes inflation has been widely tested, and shown to be wrong. Normally if you have a theory which predicts the effect of an action, and you take that action and the outcome does not materialise, you abandon the theory. It is the essence of the scientific method, which economists pretend applies to their discipline. Quite obviously that claim is false
Inflation is a tax on idle wealth, at its crudest. That is why the elite are so keen to see it centre stage. Their interests do not coincide with the interests of the rest of us, for whom a tax on idle wealth could not be much further from relevance. In a sane world wages and benefits are inflation protected, at least largely: but money in the bank is not. But asset inflation behaves differently, and the masking of that acts against the interests of the majority, because pretending that asset inflation is not inflation means that protection is not built in for those who are not asset rich but need somewhere to live.
The exclusion of asset inflation from the normal measure is no accident: and yet for some reason we have accepted the measures as “objective” and so housing markets are “strong” when rising: while wage rises are “inflationary.
I do wonder why we have accepted this self serving narrative from the rich
With inflation so low at a time of massive private indebtedness it’s clear in whose interest it is to maintain this – don’t slacken the debt bondage!
All good, but another reason there will be no inflation:
Assume PQE will increase Public investment from now 50bn to 60bn per year, the additional 10bn to be financed through the National Investment Bank and PQE.
That additional £10bn will not make any difference in determining the inflation rate, when Britain has a GDP of 1,800bn. Or it will be very, very small indeed. It will be less than 1% of the money supply.
On the other hand, £10bn a year will be enough to pay for additional social housing (at least 50,000 dwellings per year) or additional hospitals (50 hospitals a year or more).
It would be extremely foolish to forego PQE, in order to prevent a much needed increase in public investment in the UK. This is an extremely cheap way of financing, it is effectively free.
Yes, it will be “printing money” but such a tiny amount of new money will be printed, that the impact on inflation will be equally tiny. However, the impact, in terms of meeting social needs, will be huge.
I’ve been advocating printing money as a suitable tool of economic policy for a few years now. The odd thing is that it’s been advocated from both extremes of the economic debate ‘as long as the economic conditions are right’. And if they are not right now, they never will be. The thread of hyper-inflation is a scare tactic used by people who either don’t understand economics, want to terrify the electorate, or like using bonds because the city can make money out them (which they can’t do with cash).
Just one question, Richard. You talked, when on R4 the other day, about PQE being ‘borrowing from the Bank of England at the lowest interest rates possible’ (or words to that effect). This, I didn’t quite understand. Why would have a Government have to borrow the money. Could it not simply ‘print’ it by creating an electronic deposit without the need to ever pay it back?
The lowest possible interest rate is bank rate
But actually, on central bank reserves that can be zero
That is the lowest possible inetrest rate
Somebody said the “PQE is PFI on steroids” is a good soundbite.
Well, Yvette Cooper is extremely foolish to bring in PFI, with which she is closely associated into the discussion at all. She is also complete wrong in her economics. (She will get her advice/soundbites from her husband, rather than Keynes, I suggest)
In terms of creating additional aggregate demand for the economy, whether new investment by the government is financed by PQE or PFI, the increase in aggregate demand is the same. Inflation arises if the additional demand cannot be met by the economy.
Now that means that the impact of PFI on inflation is exactly the same as PQE.
Now, where is the difference?
PFI: Huge cost, tiny impact
PQE: Tiny cost, huge impact
Impact on inflation exactly the same.
Quite so
There will be [theoretically] a feed back from PFI into [unnecessary and inappropriate] taxation which would of course be deflationary and compound the debt orientated problem.
I still think the nomenclature “People’s” QE is having a negative impact. If it was called Real Asset QE, Private Asset QE, Focused QE or whatever it’d have more credibility.
Threats of hyper inflation are ridiculous. Without a total breakdown in democracy and institutional cohesion it never happens. Zimbabwe is not the UK.
Inflation reporting is a joke. After the GFC I was arguing to all and sundry that despite commodity and other asset price rises, “on the ground” the trend was deflationary, regardless of what prices were saying. This may sound stupid but what I mean is that inflation in one sense is how people respect money. It was plentiful pre GFC and people lost respect for its value, I.e., inflation, despite reported low inflation. Post GFC imoney is less plentiful among most people in the economy and so they respect money more now. That’s deflation.
Ok, so I wouldn’t want to be creating an index based on respect for money but as a gut feel for the value of money I think it tells a story!
The fact that the price of a house is not included in the inflation figures (who decided that it shouldn’t be?) has always puzzled me. It is, as others have said, the single biggest item of expenditure on our budgets whether we’re buying the house,or paying the rent (or giving £25 billion of our taxes via Housing Benefit to speculators who benefit from that inflation).
Interesting to read the document referred to in the article headed “Cameron and Clegg ‘snobbish and arrogant’-emails to Clinton” in yesterday’s Guardian. Clinton’s advisor Sidney Blumenthal wrote to Hilary in 2010 reporting a conversation he had with Joseph Stiglitz:-
“There’s absolutely no reason why you couldn’t tax speculative gains(from rising house or land prices) at 40%. There’s no social return on it and land is going to be there whether people have speculated on it or not.But you lower the tax on investment in things like R&D.
Stiglitz has one more practical suggestion to offer.Governments should set up their own banks to restart lending to businesses and save struggling homeowners from repossession.’If banks aren’t lending let’s start a new lending facility to do that job’, he says,’In the US we gave $700 billion to the banks; if we had used a fraction of that to create a new bank, we could have financed all the lending that was needed’.
Indeed it could be done for far less.’Take $100 billion, lever that at 10:1 (by attracting funds from the private sector) and that’s a trillion dollar new lending capacity-more than the real economy needs.’
Such a move would help ordinary people more than all Osborne’s rhetoric about being tough but fair…”
So there you go – 40% capital gains tax to curb house price inflation and/or get some of the ill-gotten gains out of their trouser pockets AND a peoples’ bank. Not a bad conversation over a coffee! But, hey, who listens to Stiglitz?!
Why not 100% CGT on housing, adjusted for inflation on their preferred measure, CPI?
I have no desire for 100% tax on anything
I do address this issue in my forthcoming book
What would happen to the inflation measure if we included house prices? Would it then be 10% pu?
I am not sure how meaningful it would be
PQE won’t increase the inflation risk because the amount of debt [private and public] in this system has already put the lid on it!So we’re in a Catch 22 situation because we have a debt-based system that depends on inflation to be sustainable. The only solution is to change the system!
“I still think the nomenclature “People’s” QE is having a negative impact. If it was called Real Asset QE, Private Asset QE, Focused QE or whatever it’d have more credibility.”
Think you are right.
“People’s” QE has the whiff of socialism and that is something not even the Labour Party mentions now! Private Asset QE would be good as it’s got “Private” in it as wll as “Asset” and everyone thinks they are a good idea (and doesn’t mention that the Asset might be Private to the government!)
Yvette Cooper is a jackass no matter how ‘nice’ she may seem. Her hyperinflation rant is either A. wildly ignorant and inappropriate or B. deliberately misleading.
It seems that there are now 2 reasons to support Jeremy Corbyn.
1. To make sure he wins
2. To make sure that Yvette Cooper doesn’t
By the way, Richard didn’t invent the notion of People’s QE, he invented his own Corbynomic version which focuses on public investment. Previous conceptions of QE (which are quite well-known and established) generally advocate the idea that Richard refers to as ‘helicopter money’.
Beyond that there, is nothing wrong with a ‘whiff of Socialism’. Corbyn’s candour has been his strength. His rejection of neoliberalism (private asses and all)is central to his message and it is popular. If you look at the world beyond the UK you may also find that the whiff of socialism is most definitely on the rise. There is no need to be feigning conservatism. None whatsoever.
I strongly suggest and helicopter money are nowhere near the same thing
I think that’s a major category error
I made a typo. I should have written “previous conceptions of PQE” not “QE”
I haven’t time to go digging up the references right now but your own commentary on Wren-Lewis’ response acknowledges direct-to-the-public QE or ‘helicopter money’ as a form of People’s Quantitative Easing. That is what I was trying to get at.
I was under the impression that this concept of PQE pre-dated your own although I also understand you have reservations about it and tend to regard it as consumption-based quick fix that would be less effective overall.
I do not think PQE and helicopter money anything like the same thing
I can see no justification for helicopter money
I agree that Corbyn’s candour has been his strength and I don’t have any problem with – indeed I’d even welcome – the ‘whiff of Socialism’, but I think the public are now unused to this and, whilst they may rail against certain policies, ‘socialism’ seems to be conspicuously absent from many new campaigners (see Jack Monroe for example) so I think a gentle orientation (in perhaps pseudo neoliberal terms) would be more likely to give success. After success the narrative has changed so it matters much less..
This particular distinction is partly semantic as far as I can tell and not one that I consider to hugely important. I know that its important to you though, so out of respect I will gather some references later today (or soon thereafter)and list them here. Beyond that I will not pursue the point. You can make of them what you will.
Do be aware thought that there are some who consider direct payment QE to be a form of People’s QE. To that end you might want to have a look at the a the bottom of the ‘Quantitative Easing’ page on Wikipedia (NOT my main source) as I believe it is open to amendment.
Richard,
In all but one of the following references you will find that the concept which is sometimes known as ‘Helicopter Money’ is also included among the options referred to as “Quantitative Easing for the People”.
Bill Mitchell’s article is the exception on this list. He likes PQE but thinks it is actually Overt Monetary Financing. For the record my comment on his blog states that Peoples’ QE is a better name because ‘OMF’ is too close to the slang acronym ‘OMFG’. Politically, PQE is also a more friendly term.
Personally, I find PQE /OMF to be far more interesting than Helicopter Money which is why I follow your blog. That said, I think that “no justification for helicopter money” may be a little too strong & absolute.
The point that I was making in response to May P is that, semantically (or politically) there is nothing wrong in connecting the idea of QE with that of ‘the people’, that it had already been done, that it is isn’t necessarily ‘socialist’ & wouldn’t matter if it was.
You may already be familiar with many of these links. As promised, I have listed them for the purpose of correcting the record. Like everyone else, I am not above error but “major category errors” are not generally part of my remit.
Steve Keen 2012
https://www.youtube.com/watch?v=lWwjcVSlsEE
Anatole Kaletsky (2012)
http://blogs.reuters.com/anatole-kaletsky/2012/08/01/how-about-quantitative-easing-for-the-people/
Anatole Kaletsky (re. Adair Turner speech 2013)
http://blogs.reuters.com/anatole-kaletsky/2013/02/07/a-breakthrough-speech-on-monetary-policy/
Adair Turner recommends QE for the People 2013 (a quick version)
http://neweconomics.net.nz/index.php/2013/03/adair-turner-recommends-quantitative-easing-for-the-people/
19 economists call on the ECB to make ‘QE for the people’ in a letter to the Financial Times 2015
http://www.basicincome.org/news/2015/03/europe-quantitative-easing-for-people/
Mark Blyth, Eric Lonergan and Wren-Lewis 2015
http://www.theguardian.com/business/economics-blog/2015/may/21/now-the-bank-of-england-needs-to-deliver-qe-for-the-people
Bill Mitchell 2015
http://bilbo.economicoutlook.net/blog/?p=31626&cpag e=1#comment-40827
I know some of those
Remember I did not create the term PQE
I used Green QE
BUT helicopter money is a long way from PQE, I stress
Wasn’t the idea of QE to introduce inflation into the economy anyway? How come something that will not raise house prices and asset prices but will provide infrastructure housing and jobs be highly inflationary?
Answers on a postcard, please.
Preferably from Yvette Cooper and Ed Balls who really need to be publically taken to task on this issue in a big way.
I agree that Corbyn’s candour has been his strength and I don’t have any problem with — indeed I’d even welcome — the ‘whiff of Socialism’, but I think the public are now unused to this and, whilst they may rail against certain policies, ‘socialism’ seems to be conspicuously absent from many new campaigners (see Jack Monroe for example) so I think a gentle orientation (in perhaps pseudo neoliberal terms) would be more likely to give success. After success the narrative has changed so it matters much less.. – See more at: http://www.taxresearch.org.uk/Blog/2015/09/02/why-no-inflation/#sthash.tvv1dITI.dpuf
One of the key arguments of those against PQE is that it will cause inflation (or hyperinflation for the more dramatic) because it will be increasing the supply of money. But how much will PQE actually increase the supply of money in the economy?
What I mean by this is that, as you say, money is created either by the Bank of England or the banks creating it out of thin air, and banks creating it out of thin air is determined to a certain extent by demand (people/companies asking for a loan). Say the government announces that it will create £50bn a year for the next five years for PQE, so there will be an extra £250bn sloshing around the economy. Does this mean that various people / companies that would have borrowed from the banks no longer need to do so, because for one reason or another the extra £250bn has been used for activities that without PQE would have relied on bank lending, either directly or indirectly?
As a rather basic example, without PQE the government borrows £X (money created by the banks) to install solar panels on its buildings. With PQE the PQE buys the solar panels for the government (money created by the Bank). So there is no net difference in the money supply. Instead of the banks creating £X, the Bank creates £X.
So the total money supply increases by £250bn of Bank money, but relative to the amount it would have increased without PQE it increases by a lot less than £250bn. Do you have any idea how much PQE would decrease the amount of money that banks will create?
Although the answer would be complicated because in my example, the council would repay the loan, thus “destroying” the money, while the PQE money would be permanent. But presumably the permanent £250bn would still have an effect on the total money supply long after the PQE stops in five years, so in say 20 years time that £250bn would still be moving around the economy, thus presumably continuing to decrease the amount of money that the banks would have created were it not for the PQE money, even long after PQE has stopped. So as well as the short term effects, do you have any idea about how much difference short-term PQE would make to banks creating money in the long term?
I think you hit the nail on the head
The fear is that banks will lose their right to create money
We should remember that banking is largely about wealth extraction. Create artificial wealth or riches in the form of credit into the community, then extract it in the form of spendable money, is the banks’ modus operandi. Well, PQE will be creating the riches this time so no doubt the banks will be moving to extract them by offering cheap loans. A bank loan, as we know, is money creation with a view to extracting multiples of the sum created from the economy. Create a tenner’s worth of credit with a view to extracting £100) or whichever multiple) from the economy. If there’s money about people will be feeling flush and taking on loans. The eventual upshot will be the new money created will end up being owned by the banks. One could argue they’ll have the use of much of it anyway to go gambling on stocks or whatever with because much of it will be deposited with them, once it’s spent by the authorities into communities, and banks own the money deposited with them and can do what they want with it. Unless the banks are hobbled by legislation, these will be good times for them, which is not the point of the exercise.
Inflation?
If you mostly spend all your income and say rent goes up, you will reduce spending elsewhere or try and earn more.
I suggest other spending is falling. Hence the overall effect.
We are experiencing increasing labour supply, so why would labour returns & spending rise.
See BK comment on the banks.
PQE = Build quality public assets houses, roads, bridges tunnels, possibly new powered electric roads & motorways. Aim to reduce imports * become more self sufficient.
Also spending taxes & interest reliefs could be used to control demand for discretionary goods/service if it leads to price increases or a social problems or with possible currency problems.
Take away private banks ability to create money and problems may become more manageable.