Joined: 25 Jul 2005 Posts: 18335 Location: St. Pauls, Bristol, England
Posted: Fri Aug 14, 2015 9:22 pm Post subject: Corbynomics: Richard Murphy's Q.E. For The People
Economist defends 'Corbynomics' after Chris Leslie's criticism
Richard Murphy, recruited by Jeremy Corbyn to draft economic policy, says shadow chancellor’s attack on ‘people’s quantitative easing’ is wrong
Richard Murphy attacked the Labour government’s bailout of the banks in an interview on BBC Radio 4’s World at One. Photograph: Daniel Lynch for the Guardian
Matthew Weaver
Monday 3 August 2015 15.32 BST Last modified on Monday 3 August 2015 17.10 BST
http://www.theguardian.com/politics/2015/aug/03/economist-defends-corb ynomics-criticism-richard-murphy-jeremy-corbyn-qe
The author of the economic plan set out by Labour leadership contender Jeremy Corbyn has defended “Corbynomics” in the face of an attack by the shadow chancellor, Chris Leslie.
Richard Murphy, the fair tax expert recruited by Corbyn to draft his economic policy, deepened divisions on the left by saying “Leslie has got this completely wrong.”
In an interview on BBC Radio 4’s Today programme, Leslie singled out Corbyn’s plans for a people’s quantitative easing, which he derided as printing money to “magically deal with all the public service and public investment needs that we have”.
He added: “The difficulty is that if that then provokes higher inflation, if that then means that interest rates go up, who will pay the price for that? It is the poorest and those on the lowest incomes who already find the cost of living very difficult.”
Murphy, author of The Courageous State, an acclaimed critique of neoliberal economics, responded by attacking the Labour government’s bailout of the banks.
Speaking on BBC Radio 4’s World at One, he said: “[Leslie] should remember that it was a Labour government that in 2009 created a programme of QE that eventually printed £375bn to bail out the banks. It didn’t work. It simply boosted bank bonuses and bank profits and ordinary people didn’t benefit.”
He added: “People’s QE is fundamentally different. [It] does have the Bank of England print new money, which is identical to the process that is use by ordinary banks when they lend to business, but it gives that money to people like housing authorities, to local councils, to a green investment bank to build houses, to schools to build hospitals. The very things Chris Leslie says would not be possible if this programme was put into place.”
Challenged on Leslie’s point about high inflation, Murphy said: “Any system of people’s QE would be turned off if we got to a situation of high wages and full employment, but we are so far from that at the moment that we have to tackle the low-wage economy and the lack of productivity in the UK by creating new investment, which is the foundation for new prosperity.”
“This programme is about creating jobs in every single constituency in the UK. It is not costless, there will be a small rise in inflation, but we need it. It would have to be used responsibly, but of course Jeremy Corbyn understands that.”
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Chris Leslie warns hard-left economics risk hurting most vulnerable – audio
Murphy added: “Given the economic situation we face where hundreds of thousands of people are underpaid and aren’t paying tax because they don’t earn enough to do so … The real question for Chris Leslie is why did you support £375bn for the banks when actually very much less would create jobs in every constituency throughout the UK, which is precisely what Jeremy Corbyn is offering by adopting this programme.”
Earlier Murphy also defended Corbyn plans to the blog LondonlovesBusiness. He said: “Jeremy Corbyn wants to create a level playing field for business by stopping those who are tax-cheating to make sure that all those who are honest, upon whom we depend, have the chance to prosper without being undermined by the cheating companies and people who exist in our economy …
Although Jeremy Corbyn’s proposal of “people’s quantitative easing” is described in his economic manifesto as only “an option”, some have hailed the idea as a magic solution to Britain’s economic challenges.
The policy’s cheerleader-in-chief is Richard Murphy, a left-wing tax campaigner, who says people’s QE “would stimulate the economy, boost employment and tackle climate change”.
Mr Corbyn, Mr Murphy and others such as Ken Livingstone say people’s QE would be different to the QE undertaken by the Bank of England between 2009-12 because it would support infrastructure rather than prop up the banking system. On Thursday Mr Livingstone told the BBC: “If we can get the Bank of England to fund the banking system, why don’t we get them to build us a proper broadband system . . . or to modernise our transport system?”
There are many elements of “ordinary” QE and people’s QE that tend to get conflated, however. Here is how the two compare.
The decision on the need for QE
The first question arises over who takes the decision to instigate QE — the creation of additional central bank money. Between 2009-12, that was clearly the role of the BoE’s Monetary Policy Committee, although it required Treasury authorisation.
People’s QE is definitively different: the government would order the central bank to print money and determine the quantity of QE.
Printing money
In both ordinary and people’s QE, the BoE “prints money”. This is shorthand for saying it creates electronic money — a liability on its balance sheet — which can then be used. There is no difference between the two.
Use of the money created
In 2009-12, the BoE used the money created mostly to purchase existing government debt. Since many people wanted to own government debt, these purchases eased the government’s ability to create more by running a large budget deficit and reducing the pace of spending cuts.
People’s QE is almost identical, since Mr Murphy proposes the central bank buys bonds created by a national infrastructure bank “under government direction and subject to government guarantees”. These bonds would be the equivalent of gilts, which are created by the National Debt Office, also under government direction and subject to government guarantees.
Tax and expenditure
In both cases the government would decide how much tax it would raise, how much it would spend and what it would make a priority. Mr Corbyn is clear infrastructure spending would be a high priority. These decisions are separate from the QE decision and any government has full discretion on public spending.
Cancellation of the purchased bonds
Under the 2009-12 QE programme, the bonds have not been cancelled and the BoE retains the option of selling them into the market. Mr Murphy proposes cancelling the bonds, in effect making the money creation permanent.
Technical purists would argue that no money creation can ever be absolutely permanent because a future government can destroy money just as easily as it can create it. It would simply issue new debt without running a deficit and cancel the money collected.
Propping up the banking system
The 2009-12 version was not intended to prop up the banking system. The BoE bought very few government bonds from banks and the money was not used to recapitalise them. The money required to recapitalise — or nationalise — banks was raised by standard government borrowing, not money printing, regardless of what Mr Corbyn and Mr Livingstone say.
Assessment
The distinction between people’s QE and ordinary QE boils down to whether the government or officials at the central bank have control of the monetary printing press, and whether the assets are cancelled after purchase.
There is no doubt that people’s QE ends the operational independence of monetary policy as the government, not the BoE. would decide whether to pump more money into the economy to stimulate demand. At present, the MPC is split between doing nothing and tightening monetary policy with higher interest rates. None of its nine members advocates using monetary policy further to boost demand and growth.
Mr Murphy agrees people’s QE would end BoE independence but he says the Bank’s operational independence of monetary policy — introduced by Labour in 1997 — is a myth and is, in any case, undesirable. “If the governor of the Bank of England does not like what an elected government wants to do, then he has to go,” he wrote this week.
If the government prints money for infrastructure spending, this creates an additional problem. Either the amount of infrastructure purchased would be determined by the perceived need for additional stimulus; or the government would first determine the right amount of infrastructure regardless of whether it left the economy with too much or too little demand. The risk is rampant inflation or deflation.
If everyone agreed more stimulus was needed, there is a live debate on the merits of traditional QE and outright monetary financing of deficits by cancelling the public sector bonds created.
Senior figures such as Lord Turner, former head of the Financial Services Authority, have argued in favour of monetary financing, but even as the economy was stalling in 2013 he specifically rejected the case for such a strategy in the UK, which he said had more of a problem of productivity and supply than deficient demand.
People’s QE does not deserve the magic status it has acquired. If a government wants to make infrastructure a priority, it already has the tools. _________________ www.lawyerscommitteefor9-11inquiry.org www.rethink911.org www.patriotsquestion911.com www.actorsandartistsfor911truth.org www.mediafor911truth.org www.pilotsfor911truth.org www.mp911truth.org www.ae911truth.org www.rl911truth.org www.stj911.org www.v911t.org www.thisweek.org.uk www.abolishwar.org.uk www.elementary.org.uk www.radio4all.net/index.php/contributor/2149 http://utangente.free.fr/2003/media2003.pdf
"The maintenance of secrets acts like a psychic poison which alienates the possessor from the community" Carl Jung
https://37.220.108.147/members/www.bilderberg.org/phpBB2/
Joined: 25 Jul 2005 Posts: 18335 Location: St. Pauls, Bristol, England
Posted: Sat Mar 19, 2016 2:23 pm Post subject:
Political economist Richard Murphy: Osborne's Big Lie, he knows he will never balance the books
Investigative reports: with tax justice campaigner Richard Murphy. Interview with tax justice expert Richard Murphy, discussing this week's Budget: Osborne's failures – less money in and more benefits payments – no chance whatever of a surplus; poor quality press coverage of Budget – microeconomics not macroeconomics covered by London media, no mention of Mervyn King predicting another crash; 2008 banking crisis – banking problems still not addressed; spending 'People's QE' into the economy on infrastructure; effects of QE used to bail out banks; dealing with tax havens – BBC Documentary 2016: Britains Trillion Pound Island - Inside Cayman - start with transparency; money off the gold standard – all money is debt, inflation; Positive Money - get away from debt based money? Mervyn King on Andrew Marr show – whose really running things? – Bank of England run by government; Budget - banks will not be prosecuted for foreign exchange fraud; suicide bomber banks: power of banks – knew government would bail them out in 2008; German and UK stock markets could merge with German boss Carsten Kengeter, who ran the Libor fraud department for Swiss UBS bank, in charge; Adam Smith Institute says people on benefits are genetically different; Richard's book 'Joy of Tax' and search him online to see his blog. Kevin Cahill discusses the latest on his court case against US internet giants for taking money from NSA to spy on British citizens – Safe Harbour and PRISM, Snooper's Charter, NSA gives £20m a year to Microsoft.
Political economist Richard Murphy: Osborne's Big Lie, he knows he will never balance the books
A budget for the UK’s tax avoiders
http://www.taxresearch.org.uk/Blog/2016/03/16/a-budget-for-the-uks-tax -avoiders/
POSTED ON MARCH 16 2016
For a long time most people have associated tax avoidance with big multinational companies.
George Osborne took some welcome steps to tackle them today: I must give credit where it is due. UK companies taken over by foreign owners who then pile then up with debt to cancel their profits will see that game brought to an end. Think Boots. Think Manchester United. Think the AA.
And companies who try to shift profits to tax havens by relocating the ownership of patents and copyrights to such places, for which they then pay a royalty, will have to pay UK tax out of the payment made. That effectively brings this income back onshore. Think any large multinational doing R&D.
There are also very welcome measures to hit offshore property developers.
But please don’t think it is all good news. If George Osborne was really serious about tackling offshore today he would have announced public country-by-country reporting, and he didn’t so we still don’t know who really needs to be brought to account.
But worse, he opened up massive new tax avoidance opprtunities within the UK. The bigger the difference between income tax rates and corporation tax rates the bigger is the incentive, and the greater is the saving, from running a business through a limited company. Up and down the country accountants will be selling this, literally right now.
And the cuts in capital gains tax will be also be sending those same advisers into fever pitched excitement as they work out how to turn income into gains to save up to 25% tax for some clients.
Don’t be fooled: this was a great day for the tax avoidance industry, but just not the bit we’re used to looking at.
http://www.taxresearch.org.uk/Blog/2016/03/16/a-budget-for-the-uks-tax -avoiders/
Could @RichardJMurphy's 'People's QE' help Iran resist US sanctions? US-made weapons discovered by Iranian police, being used to destabilise arm demonstrators Link on @PressTV7
http://youtube.com/watch?v=YWah1Q78xOA
AUGUST 6 2015 By: Matthew C Klein
If Jeremy Corbyn becomes leader of the UK Labour Party, one positive consequence will be the ensuing discussion of the monetary policy transmission mechanism.
It all started with his presentation on “The Economy in 2020” given on July 22:
The ‘rebalancing’ I have talked about here today means rebalancing away from finance towards the high-growth, sustainable sectors of the future. How do we do this? One option would be for the Bank of England to be given a new mandate to upgrade our economy to invest in new large scale housing, energy, transport and digital projects: Quantitative easing for people instead of banks. Richard Murphy has been one of many economists making that case.
That passage seems to have been mostly ignored until August 3, when Chris Leslie, Labour’s shadow chancellor, attacked the policy, which in turn led to a detailed response from the aforementioned Richard Murphy (see also here and here), at which point what seems like the bulk of the British economics commentariat erupted. Just search the internet for “Corbynomics” if you don’t believe us.
Much of the commentary has been negative — former Bank of England economist Tony Yates concluded, for example, that “People’s QE” would be “the first step along the road to undermining the social usefulness of money” — although Chris Dillow gave an intelligent defense.
We don’t understand the negativity. Some of the specific arguments justifying the proposal may be flawed, but the core idea is sound and possesses an impressive intellectual pedigree. In fact, it could help solve one of the most troublesome questions in central banking: how policymakers can accomplish their objectives using the tools at their disposal, without producing too many unpleasant side effects.
One of the oddities of “monetary policy” is that it has almost no direct impact on how much money there is to go around.
Virtually all of what we commonly think of and use as money is actually short-term debt issued and retired at will by private financial firms. Monetary policymakers can affect the incentives of these profit-seeking entities but they have little control over the amount of nominal spending occurring in the economy. Nudging the unsecured overnight interbank lending rate up and down can encourage lenders to adjust their leverage, but good luck tying that to the traditional price stability mandate. (Also, a friendly reminder that the level of interest rates is basically irrelevant for corporate investment.)
Then there’s QE. Central banks across the rich world have been “printing money” — trillions! — without producing a large and obvious impact on inflation or real growth. That’s because, contrary to popular belief and the misleading language of too many commentators, they haven’t been “printing” anything at all. What’s actually happened is that policymakers have been finding people with extremely liquid assets and buying those assets at market prices. Giving someone $100 in exchange for an easy-to-sell bond currently trading at $100 has some impact but it’s much less exciting than “printing money”. As Mark Dow put it, “if we all understood monetary policy better, the Fed’s policies would be working far less well.”
The existing monetary policy tools also have the unseemly property of appearing to work mainly by making the rich richer and hoping that some of the extra wealth gets spent. Even if it’s true that the rest of society benefits from this, because otherwise they’d be unemployed, this is trickle-down monetary policy. The Bank of England admitted that “in practice, the benefits from these wealth effects will accrue to those households holding most financial assets”.
Cutting out the middle men is the most obvious way to improve the transmission of central banker desires into economic reality. If policymakers want people to spend, they shouldn’t try to juice share and home prices, or fiddle about with borrowing costs at the margin, but actually give people money.
(This, by the way, was the core insight of the “Capitol Hill Baby Sitting Co-op Crisis” made famous by Professor Krugman. There was no “monetary policy” as conventionally understood, just fiscal policy paired with monetisation of deficits. We highly recommend reading the original article in full, but the short version is that budget surpluses caused by excessive taxation led to a shrinking money supply and an unwillingness of the co-op’s members to use their increasingly-valuable scrip to purchase time away from the kids. Fiscal stimulus — a one-time tax rebate plus permanent tax cuts — solved the initial problem, but wasn’t executed well, so the co-op soon started suffering from a surfeit of scrip and too many people wanting to go out on the town.)
Our preferred approach would be direct deposits into household accounts offered at the central bank. It’s simple and doesn’t require any political debate about how best to spend the newly created money.
But Corbyn’s plan to have the Bank of England fund government-directed investment in infrastructure could also work, especially if the pace of investment were adjusted according to the condition of the economy. In fact, Adam Posen supported something similar when he was on the Monetary Policy Committee of the Bank of England, except that he focused on small businesses.
Compare what Posen said back in 2011:
I would suggest that the Government set up two new public institutions to address the investment gap by increasing the availability of credit to SMEs and to new firms. One would be a public bank or authority for lending to small business…The other institution I would encourage the Government to set up would be an entity to bundle and securitize loans made to SMEs. Essentially, we need a good version of Fannie Mae and Freddie Mac to create a more liquid and deep market for illiquid securities which can then be sold off of bank(s) balance sheets…
And this is where the Bank of England comes in. Both of these entities, the new SME lender(s) and Bennie, would need an initial infusion of capital…By announcing a commitment to lending the initial (gilt-backed) capital for these proposed entities, assuring all that such entities if well managed can have liquidity from the central bank as needed, and publicly supporting their creation, the Bank can do a lot to fill financing and investment gap in the UK…
More explicit and active cooperation between monetary policy and governmental programs to rectify our resulting investment shortfall is not only good policy, but likely to enhance the credibility and viability of our monetary regime. Our current credit allocation problems and resulting investment shortfall is one of the biggest specific barriers to recovery and to sustainable price stability in Britain. Monetary policy in the form of more QE will address this shortfall. The Bank of England, however, can and should go further than just doing more QE to remove this barrier to investment and growth in new and smaller businesses.
…to Richard Murphy’s description of “People’s Quantitative Easing”:
People’s quantitative easing is…a highly directed process where the debt that is repurchased has been deliberately created and issued either by a green investment bank or by local authorities, health trusts and other such agencies for the specific purpose of funding new investment in the economy at the time when big business and financial markets are completely failing to deliver the scale of investment that is needed to get the UK working again and to restore our financial prosperity.
And again:
No one is saying that this puts the BoE in charge of investment policy. It is just the purchaser of debts, as is the ECB right now to the tune of €60 billion a month. The decisions on how the money is used will rest solely with the government. The BoE is simply acting as a bank, providing funding for that purpose in a way that Mark Carney and Mario Draghi have both said is technically and legally possible.
Posen thought that private lenders weren’t providing credit where he believed it was needed, so he recommended creating new public investment banks that could originate and securitise loans into bonds that could then be purchased by the Bank of England, thereby funding new business investment. Corbyn/Murphy want specialised “green” investment banks, housing authorities, and local governments to be able to finance infrastructure investment secure in the knowledge that the Bank of England will be there to provide funding support. We fail to see a significant difference.
You could oppose the policy because you think the government will make bad investments, but by that logic you’re really just against any government-led infrastructure spending. You could also object to the idea that the government is effectively using the central bank to finance its deficit spending and undermining the shibboleth of “central bank independence”, but you would have to contend with the arguments of, among others, Martin Wolf, Paul McCulley, and that old communist Milton Friedman.
The main concern about Corbynomics isn’t whether the monetary transmission mechanism needs an upgrade — it does — but whether the UK actually needs that much additional investment spending.
There’s a plausible case to be made that the existing budget and household debt forecasts imply an unsustainable household debt spiral, so any additional spending that doesn’t require the private sector to live far beyond its means should be welcome.
Suppose you reject this analysis and prefer traditional guides to macro policy. A quick look at employment and hours worked suggests the economy is on fire and could use some rate hikes. But if you separate out the extra work effort from what’s happened with real incomes, the implication is that UK productivity growth has been abysmal:
If Corbyn’s preferred investments are useful, they could help restore some of the lost ground in productivity and lead to higher real wages for Britons. And by expanding capacity, this extra investment spending may not even end up being inflationary. (The actual amounts in question, according to Murphy, are quite small relative to the size of the UK economy.)
“People’s QE” is far from an obviously wrong idea. Implemented properly, it could even improve the Bank of England’s ability to fulfill its mandate without needing to goose house prices or get into contentious debates about helping the rich at the expense of pensioners.
Related links:
Corbyn and the People’s Bank of England — Jo Michell
Iceland’s grand monetary experiment? — FT Alphaville
Central banking: just when you understand it, it changes — FT Alphaville
COMMENTS (158)
FugaziSep 25, 2015
Here is an idea for the UK thanks to our lads and gents in the I-don't-bother-with-reality department of "math is hard". Change the name of the central bank to People's BOE you might disguise yourself as the PBOC. Start massaging those productivity figures a little bit - what is reality really after all? In no time you'll be having those Chinese 7% growth rates... hey! nobody said those will be inflation adjusted growth rates...
TaxpayerSep 14, 2015
In the end this is the supposed independent MPC that allowed for HTB2 to happen. How many ex-Treasury employees are in the MPC?
Is it really independent? And does QE only help asset-owners while sacrificies youth/tenants and savers?
Time for a change in policy. If we print, lets print so all are benefitted and rents/house prices fall to normal wage levels.
Avraam J. DectisAug 26, 2015
Jeremy Corbyn and Richard Murphy deserve credit for being bold enough to propose this.
A few additional points:
1) Inflation could actually go down if the housing supply increased to the point that rents and sale prices decreased. Note that many MPs let property, so there may be pushback on this for unspoken reasons.
2) The investments will be paid for with bonds, raised from the public, just like all other bonds. BOE will have to pay them off, but there is no rush to do so, so any inflationary impact from BOE will be muted. If the initial spending on infrastructure does not cause inflation, it is unlikely to be caused by BOE paying them off.
3) Taxes will not have to be levied on the public to pay for this. It makes it politically easy.
4) It may well boost GDP growth rates, reduce inequality and as stated, get more people working at higher wages.
Avraam Jack Dectis
MrAEMiller Aug 25, 2015
If you want to try and spend your way out of a recession by investing in infrastructure projects and lending money why not DO JUST THAT? My conclusion is that QE allows the government to increase spending while not looking as though it is increasing spending? Printing more money will have to be paid for presumably by those who's saving it devalues but it doesn't appear on the government's bottom line figures? No wonder the Tories are so fond of it. The question is ...why is Corybn. This new printing fake money thing seems like a fad to me...
Willem de LeeuwAug 28, 2015
@MrAEMiller I agree it might be an attempt to make them seem radical and fudge the creating an even larger deficit angle that people find very easy to understand but it differs from conventional QE as it seems that they think that they could simply extinguish the liability without repaying the Bank. Without consequence. If they were to get away with it once...
FunctionalFinance.OrgAug 18, 2015
In sum, message to representatives let's update the monetary transmission mechanism already!
RazzoAug 10, 2015
I am very puzzled by the insistence of economists that any growth in the monetary supply not due to increased productivity is not inflationary. Having witnessed and felt the impact of inflation in Russia in the early 90s and again being present in Indonesia in the fall of 1997 I do not understand why it is considered smart to engage in inflationary practices. Inflation is the thief that steals from the thrifty ant and rewards the profligate grasshopper. So the idea of creating a perfect storm of inflation by dropping money on the populace strikes me as totally insane. This encourages the grasshoppers to become locusts. The claim that there is not adequate credit for business expansion is spurious. There are always lenders for credit-worthy borrowers. The key here is credit-worthy which means the lender has a high probability of having the loan repaid with interest. The comment about the myth of an increase in the monetary supply leading to increased output and employment is well taken. If money becomes easier one of the results is the increase in automation of all work because capital is a lot cheaper than labor and a lot more reliable. What the current crop of economists appear to overlook is the benefit of fiscal discipline at both the individual and public level. If a person or a country does not have the discipline to eschew debt and defer gratification in order to maintain their independence of action they are letting others call the tune.
WhistlerAug 19, 2015
@Razzo We have had money printing without inflation. Perhaps the key to avoiding inflation is only to do it when there is a large amount of unutilised productive capacity
RazzoAug 21, 2015
@Whistler @Razzo If you believe we have had money printing without inflation I invite you to compare like prices for a bag of groceries from three years ago. The Central Banks, especially the Fed are blowing smoke with the inflation numbers with all their "adjustments". Remember "figures don't lie but liars figure".
WhistlerAug 21, 2015
@Razzo @Whistler Groceries up then, but what about electronic goods, petrol, oil and gas for heating?
I agree the numbers are suspect though, and clearly house prices /rents appear to be under-represented.
IMKAug 8, 2015
Just a slightly convoluted way to say "the UK needs to increase deficit spending to fund infrastructure projects to increase the country's long-term prospects". Most certainly a good thing to do currently, the only issue here is that this is only seems to be championed by lunatic lefties who also want to disarm, tax "the Rich" to death and support dodgy middle-eastern militias. If only the Tories could shed their ideological nonsense about "balancing the books" we would end up with wiser economic policies alongside appropriately centre-right view of the world and social values. Arguably the right mix for any modern country.
Felix2012Aug 8, 2015
The hard part about spending money is about spending the money that has +ve NPV after maintenance cost. Building chinese style ghost city or Japanese style bridge to nowhere will only burden the future people more. If politician are going to spend, then their future prnsion must be tied to the outcome of the spending or misspending.
MiffyAug 13, 2015
@IMK The people the 'centre right' (and self-proclaimed centre-left) have chosen to support in the ME have hardly turned out to be a bunch of cub scouts, though, have they?
MonetaryPerspectives.comAug 8, 2015
Soon, the world will realise that monetarism is a myth, central banks want you to believe it works, but it doesn't.
Laissez-faire, coming soon-ish to a world that needs it.
Tim YoungAug 7, 2015
This peoples' QE is really just a floating rate funded public investment fund (because it is reserves-funded and reserves bear the BoE repo rate), but Richard Murphy does not seem to understand that. This seems inadvisable at a time when long-term interest rates are low, but presumably the attraction is that "peoples' QE" obscures the "borrow and spend" nature of the programme.
spartfarkinAug 12, 2015
If you can't borrow and spend when interest rates are practically zero, when can you? Seems rather a good idea to me....
Willem de LeeuwAug 28, 2015
@spartfarkin Has the demand for gilts dried up? I haven't read this.
Sus ScrofaAug 7, 2015
"the short version is that budget surpluses caused by excessive taxation led to a shrinking money supply" I did not know that story but enjoyed reading about the co-op. I feel however compelled to comment on the summary presented here. This summary is no analogy to any fiscal stance of a government. The problem with the fiscal authority of the co-op was that it literally bunkered the excess scrip that it collected. A state running a surplus would simply recycle that surplus back into the private economy, so that the money supply (in the private economy) would not necessarily shrink.
IMKAug 8, 2015
@Olaf von Rein It would likely retire existing debt which indeed may not reduce private sector wealth at that moment but the multi-period effect may matter here. Wouldn't paying down say a maturing bond rather than rolling it remove future interest income from the private sector and change the rate of money supply growth (i.e. reduce future money supply vs previous trajectory) ?
PhysiocratAug 7, 2015
As described, this sounds like a bad idea. Infrastructure , if it is not money down the drain, results in land value uplift. If LVT is not in Corbyn's programme, it will just pump up the land price bubble a bit more.
spartfarkinAug 12, 2015
So are you recommending LVT? I'm sure Corbyn would not be averse.
fishAug 6, 2015
The peoples QE can only work in the long run if there is a peoples anti-QE. Both can benefit the people, depending on the circumstances.
If Peoples QE involves unilaterally crediting citizens accounts at the CB, then anti-peoples QE must involve unilaterally debiting the same accounts.
You can call it benefits and tax, or positive interest and negative interest. The only difference is the institution making the decision - the monetary or fiscal authorities.
As other posters have observed, having a political dimension to the decision to debit or credit these accounts is unlikely to end well.
DragoAug 6, 2015
Myth: An increase in the money supply (be it MB, M1, M2, or whatever) is necessarily accompanied by a rise in employment and real output.
Once you recognize this myth, the premise of the above article completely falls apart.
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MiffyAug 13, 2015
@Drago Of course that is a myth. As evidenced by QE over the past few years. But the point of the above article isn't an increase in the money supply per se (that would seem to be more in line with conventional QE) but deployed in very specific ways.
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DragoAug 13, 2015
@Miffy @Drago The point is that you cannot force households to consume more, nor can you force businesses to invest more.
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Felix2012Aug 13, 2015
@Drago @Miffy "force people to consume more..." Oh yes you can. For example, make it illegal to own a car that is more than 10 years old (like in Japan), tax on savings above certain amount etc.
The latest pension auto enrolment just cost employer to 'consume' more pension services.
Whether such 'force' ever makes people life better is another matter.
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10 replies
Shuichi SetoAug 6, 2015
That is a morphed Qualitative Easing using a chopper
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MysterionAug 6, 2015
Standard QE is welfare for the rich - it works via the wealth effect. If you don't have any assets you can only benefit from trickle down. The central irony of current politics is that most prominent leftists support QE because they love economic managerialism. They ignore the massive distorting effect on wealth inequality. Welcome to the 'leftists for inequality' band wagon.
Note the extraordinary cognitive dissonance here. Most prominent left wing Americans cut their teeth opposing Reaganomics - yet here they are now as its biggest boosters. The focus on income equality over wealth inequality is particularly weird as the scale of the latter is far larger in financial terms than the fiscal measures demanded by the left. In my case its as though QE has rebated every pound of income tax I have ever paid. And the left supported this ?
If the only alternative is standard QE its PQE for me.
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FearTheTreeAug 6, 2015
@Mysterion Comment on Point.
Worse, the same prominent Dems who support QE also support regressive energy taxes, which further exacerbate income inequality.
Strong cognitive dissonance.
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MysterionAug 7, 2015
@FearTheTree @Mysterion At greater length -
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ukrainewatcherAug 6, 2015
I really like the article and am very happy that Corbyn is getting serious support in news sources, as to me he is the only politician worth listening to at the moment. And as stereotypical socialist - privately educated, oil and gas private equity, I've just joined the Labor party to vote for Corbyn)
Although I think it overcomplicates the article overcomplicates things and not sure why you'd need a BOE to achieve the aims set out. Just follow the Scandinavian (or Dutch) model of a government fund investing in appropriate infrastructure projects, with an independent board, well defined mandate and levels of activity defined by the state of the economy (Like Green Investment Bank or Statoil in Norway). Permit minority co-investment from private investors either into the projects or the fund's sub-vehicles, so there is oversight from private investors.
Before people shoot me about Statoil, it (alongside with the oil regulator) was a beautiful state solution to market failures associated with offshore oil and gas production - particularly access to infrastructure. I went to a Wood Mackenzie conference on the state of Oil and Gas in North Sea and its clear that Thatcherite free market approach to developing the North Sea was an unmitigated disaster in comparison with Norway's "Socialist" approach - the result is Norway will get way more value from its oil than the UK, keep that value for future generations and invested in appropriate infrastructure at appropriate time. Likewise Thatcherism was a disaster to many aspects of the UK, which you only realise once you live in Europe for a bit (where on EUR30k you can have a lifestyle of someone on GBP70k in London)
People who think free market capitalism is always preferable to state controlled socialism really don't know what they're talking about.
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DominationAug 6, 2015
@ukrainewatcher In Scandinavia the money used was raised by taxation or borrowed by the government. It was not printed.
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ukrainewatcherAug 6, 2015
@Domination - it really doesn't matter, money is illusory concept that should really be left to people who really understand monetarist economics - lets just say that despite "printing trillions", U.S. Didn't turn into Zimbabwe, but is struggling with deflation - because it's just not how it works, but you need at least an MSc in economics to begin grasping it (I did a BSc at LSE and that part of economic theory is way to dense for me to even get. So I don't bother)
I know that catastrophic market failures exist - oil and gas, railways, low wages, health insurance - there is very simple theory that explains reasons for them. Financial crisis of 2007 happened thanks to a very predictable market failure. It was resolved through very simple mechanisms and in fact Lehman brothers would've been 100th of a disaster it was had government stepped in instead of "leaving things to free markets to prevent moral hazard" (which is what Brown and Co did. It would've cost a few billion, which is a footnote in anything.
No it should've bailed them out and imprisoned the perpetrators - that's how you avoid moral hazard. I bet you after the LIBOR sentence (whilst very harsh), would save the country tens of billions as people in investment banking will stop taking the p.... I mean seriously, they put obvious crimes in writing as no one ever took them up on it. Quindell scandal - again, complete joke. I'm in oil and gas and know tens of cases of outright and very provable fraud by management (relating to technical forecasts - I'm economist and they were obvious to me well before they cost shareholders millions). Insider information openly leaked, backhanders, blah blah but no one ever chases this properly as the game is rigged between non-execs, technical staff, auditors and market regulators.
One day, I'll create a hedge fund investing in dodgy small-mid size oil companies and then suing the stakeholders for fraud. Not for money but just as a hobby. It would be like shooting fish in the barrel, I promise you
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Willem de LeeuwAug 28, 2015
@ukrainewatcher The thing about Zimbabwe though is that it doesn't have a credible economy to back up the currency. Places like England, the US and Japan can get away with it more easily because they do and it was, I think, relatively limited versus their economies. It also helps that QE isn't conventional money printing in the frame of Zimbabwe or Weimar.
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Terra_DesolataAug 6, 2015
"If policymakers want people to spend, they shouldn’t try to juice share and home prices, or fiddle about with borrowing costs at the margin, but actually give people money."
Which would, of course, have the immediate effect of increasing share and home prices, and in fact the prices of everything that people spend money on. The day that people have more money to spend is the day that every price goes up.
This is nothing more than a repackaged attempt to inflate one's way out of trouble. On paper, it looks so appealing: create more money to pay off debt. In practice, it never works, with rampant inflation destroying economic activity and pushing the economy into a downward spiral. As the poet once wrote, "though we had plenty of money, there was nothing our money could buy".
The central banks have been able to get away with QE without sparking massive inflation (well, outside of financial assets, anyway) only because, as pointed out, they were swapping one liquid asset for another. This proposal does no such thing, it simply injects massive amounts of cash into the economy, which will, if history is any indication, have a very predictable effect.
The more these kinds of proposals pop up, the more I suspect that a significant number of economists and financial journalists sincerely believe that inflation is a myth, a scary story, a bogeyman used to frighten policymakers; and that if only we could ignore the ghosts of the past, we could find our way over the rainbow to a land of free money and endless prosperity. One of these days someone is going to make a reckless decision, and we'll find out the hard way that the myth is very real indeed.
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BankersrockAug 6, 2015
@Terra_Desolata You need to red Steve Keen's view on a modern debt jubilee and how you would conduct such an exercise in a controlled way to avoid the pitfalls you describe here.
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Terra_DesolataAug 6, 2015
@Bankersrock @Terra_Desolata I'm familiar with Keen's ideas, and they aren't bad (nor are they particularly new - they are borrowed from Leviticus, after all). But debt forgiveness is a separate thing from creating money that is directly injected into the economy, even if they "feel" the same for consumers. I think there is a case to be made for debt forgiveness - we write debt off in bankruptcy court all the time, after all - but creating money for the express purpose of spending is playing with currency fire.
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