From the Guardian:
Your editorial (19 August) correctly points to the fact that the “money no problem” approach to tackling the short-term upheavals caused by coronavirus must now shift to tackling the climate crisis. If not, it risks the further alienation of young climate protesters, the exceptional Greta Thunberg and the countless environmental campaigners active over the past few decades. The catalyst for this is the need for new jobs in every community to counter the political, economic and personal trauma that will come in the wake of the coming tsunami of lost livelihoods across the country.
An answer to the inevitable question of how to pay for such a transformation was provide by Larry Elliott's observation (18 August) that the government's money-printing programme of quantitative easing (QE) inflates the assets of the already rich, rather than helping rebuild the real economy. Given rising unemployment, it's likely that QE is going to be required for some time to come. In that case, the government's e-money printing presses must be used to help fund the employment of the millions of increased staff needed across all social sectors, from more care and health workers to teachers and police, while also funding investment in new climate-friendly infrastructure projects, such as making the UK's 30m buildings carbon neutral and adapting existing infrastructure to deal with future heatwaves and flooding. This would be a serious start to healing the damage currently being inflicted on people as well as the planet.
Richard Murphy Visiting professor, University of Sheffield
Colin Hines Convener, UK Green New Deal Group
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Would that we had a ruling cadre not so deaf to good ideas!
deaf? or just stupid?
Extract from : https://www.businessinsider.com/infrastructure-economic-multiplier-2012-11?r=US&IR=T
A recently published working paper from the San Francisco Fed shows that the fiscal multiplier of infrastructure spending is much larger than the typical government spending multiplier. Sylvain Leduc and Daniel Wilson studied the effect of unexpected infrastructure grants on state GDPs (GSPs) since 1990 and found that, on average, each dollar of infrastructure spending increases the GSP by at least two dollars. Valerie Ramey, Professor of Economics at UC San Diego and member of the National Bureau of Economic Research, reports that the typical fiscal multiplier is between 0.5 and 1.5.
My comments: So by extension: each £ of Uk spend on infra (however you define it) would drive circa £2 of economic activity. Sunak will know this (if he does not – he should not be in his job). Any speading on renewables has an IRR of circa 5.6% (source; BEIS). A combo of economic multipliers and IRRs would dig the UK out of the mess it is in. Won’t happen in my view – tories are a mix of too thick & too ideological to take this route – even though it is staring them in the face..
But the OBR does not agree – it has always assumed minimal multipliers for any government spending – hence austerity, by choice, with the Sanction fo the so-called independent watchdog
But as we were discussing yesterday they should not fund it via the present QE process of buying gilts at very inflated prices on the secondary market. When a £100 face value gilt is currently priced on the market at anywhere between £150 and £300 depending on the coupon rate (the headline interest rate on the £100 face value) because the current actual interest rates are so low (in an entirely mathematical manner then the price of the gilt is inversely related to the interest rate – if the current rate on new gilts falls as it has this year then the price of all existing gilts rises and vice-versa) then for the BoE to buy them at those prices just locks in a capital gain for the former holders of anywhere between 50% and 200%. If the Bank holds the gilts to redemption when the Treasury ‘repays’ the face value then the Bank will show a ‘loss’ equal to the former owners gain. We have therefore simply had public funds pay out the very large gains to the investors. What they should do is to have the BoE buy new gilts in the primary market, i.e. direct from the DMO (Treasury) or simply cut out the gilts entirely and let the Chancellor run up the overdraft on the Ways & Means account.
If held to redemption, in theory, this simply unravels over time as the excess interest saved counters the premium paid, I think
But in short term accounting that is not the case as different discount rates are used
The BoE is giving the interest back to the Treasury so yes the gilts have effectively become zero coupon (well 0.1% to be precise), but there will still be a ‘loss’ that shows up some years down the road in the BoE accounts which they will then demand off the Treasury under the indemnity. So in say 10 years time ‘we have to cover the losses on the QE’ can then be used as another excuse for austerity.
However, regardless of whether the interest saved covers the capital gain paid out to the original gilt holders I do not think we should be using public funds to lock in big capital gains for private gilt holders. It is not necessary to do so if we just get over the ideological blocks. Also the high price of gilts is indicating there is a shortage of them, even if a somewhat artificial shortage due to the BoE buying so many.
It is really the same as when RBS was in trouble in 2008. The Treasury could have bought up the shares on the LSE and thus bailed out the share holders as well as the bank, or what it actually did which was to buy new shares. So that was direct financing of RBS rather than going via the secondary market. So why not direct financing of the Treasury?
Off topic (a bit) but I think Biden may have already lost the next presidential election. It seems to me that he needs to surface with a full on GND, good jobs, better schools, better healthcare, better utilities esp. water – and not to worry about being called a socialist. In my view he cannot win by just being nicer than Trump, or ‘not Trump’.
That would be good for America, and, because this will happen over the next couple of months, could have a positive effect on UK. The more it gets into the public domain in US election, the more likely there will be demand for similar here.
Policy will win…
The counter-argument being used against Trump on this issue is that prior to the onset of Covid-19 he already signed up (with Congress’s approval. The British always forget this bit) for massive deficit spending, a good chunk of this giving tax relief to the super-rich like himself.
Of course that deficit spending has further increased with Covid-19 and economy shattering hyper-inflation has not broken out! Of course, like the UK, the United States is full of “Dark Age” voters who haven’t got a clue how the monetary economy they live in really works.
I personally think Trump will lose mainly because of female voters who now regard him as obnoxious because of his gross insensitivity towards others and women for a variety of reasons have better antennae in this matter!