The chatosphere seemed ablaze today about UK Labour Party leadership contender Jeremy Corbyn’s plans for a ‘People’s QE’. Richard Murphy was reported as being on World At One defending it, based on its resemblance, I presume, to a ‘green QE’ plan he wrote about some time before. [For a comprehensive demolition of that, see Frances Coppola’s blog].
There is lots wrong with Corbyn’s plan, and I don’t think shadow Chancellor Chris Leslie’s attempt to counter it really works either.
First, I dislike the populism behind the label ‘People’s QE’. It implies there was something elitist about the QE the BoE conducted. For sure, QE had distributional impacts. But the counterfactual, if it had any effect at all, would have been life much worse for those that would experience the deeper recession, which, historically, has always been the poor, since it’s they who disporportionately suffer unemployment. If we can wave a QE wand for ‘the people’, why not proclaim a ‘People’s Interest Rate Policy’ too?
Second, and more importantly, Corbyn’s plans are not being presented on monetary policy grounds only. Any attempt to hijack the printing presses for general deficit financing, when loose money is not necessary to achieve the BoE’s mandate, will wreck monetary policy for a long time to come. Simon Wren Lewis, who actually favours helicopter money transfers for monetary policy purposes, made this same point on Twitter [at least I read him that way].
The reason for the wreckage will be that the next time the Government fancies winning an an election by promising grand public works schemes, it will be expected that the BoE will print money to finance that too, and this will lead to more inflation, and, because this will be expected, will make it ever harder to finance expenditure this way.
Corbyn’s QE is the first step along the road to undermining the social usefulness of money, and would ultimately impoverish us.
If we were in a state of monetary policy crisis, then QE-financed something is at least worth considering, and Wren-Lewis, Lonergan and I think Portes have all supported the idea. But that something should be as politically neutral as possible, and not a matter for the BoE.
At any rate, even in such a state, I would consider this an almost last resort. [The very last resort being altering the institutions of money to permit substantially negative nominal interest rates].
The first resort, which Corbyn and others should be considering, is simply a slightly looser and conventionally bond-financed fiscal stance. Together with, as I and others have urged, some institutional device to make assistance of monetary policy semi-automatic at the zero bound to interest rates.
The fact that Corbyn has not simply gone for what I describe as the first resort, even in a more accentuated and therefore left-appealing fashion, is striking, and betrays a lack of basic understanding, or a Magpie-like attraction for the radical-sounding, or both.
To amplify a point made earlier, all this is not to say that there is not a perfectly arguable case for looser fiscal policy, directed now in pursuit of public infrastructure projects. The linchpin of that case is the fact that current real financing rates for such projects might be argued to be fortuitously low now, and future generations would lament that we did not take advantage of them. At the same time, current public infrastructure is argued to be ailing in many respects [power generation and rail being the most obvious cases], and so social returns are high.
However, that said, this is not something that should be done in a way that involves the Bank of England directly, and nor need it be done this way.
Whether the ‘People’s QE’ will prove an electoral liability, who knows. In my experience, QE is hard to fathom, even for senior central bankers, so it might prove catchy in the wider public debate. But, if Mr Corbyn could be made to see that it’s unnecessary and silly, the electoral downside risk for his party, of coming to seem like financially inexpert cranks, would be avoided.