Richard Murphy and John Mann debate ‘people’s quantitative easing’
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Yes

Richard Murphy

People’s QE’ might, according to Ambrose Pritchard-Evans of the Daily Telegraph, be the most important idea that Jeremy Corbyn has put forward. He is not alone in saying so. Paul Krugman said pretty much the same thing in an op-ed in the New York Times recently.

So what is all the fuss about? As the creator of the version that Corbyn has endorsed let me explain.

Quantitative easing is the process where a central bank (in the United Kingdom, the Bank of England) buys bonds that have been issued by the government that owns it. The aim is threefold. First, it wants to provide liquidity in the form of new money to the economy when private banks are not lending enough to meet the need for money creation. Second, the aim is to create inflation when (as now) the economy stubbornly refuses to do so of its own free will and the curse of deflation hangs over us. Third, it hopes that because of changes in the way QE, at least in theory, changes financial asset portfolios that some new money will trickle into the real economy to stimulate growth.

There is one problem. The experience from about $6.5tn of money being spent on or committed to QE in the United States, Japan, the European Union and the UK is massively disappointing.

We have no inflation. The UK has had the slowest recovery from a recession since the South Sea Bubble in 1720. And the new money has only given rise to asset price inflation, whether it be stock markets, or commodities (which many think remain overpriced), buy-to-let or top-end housing in London. Income and wealth divides have increased. Real people have lost out. And the story is the same in the other economies that have used it.

What is worse, now QE has so obviously failed there is no economic weapon left to deal with next economic downturn, and few doubt that is on its way. As Martin Wolf argued recently, that will be the next big export from China.

‘People’s QE’ is that new weapon. What it suggests is that the government will in the next downturn have to invest directly in what Krugman calls ‘stuff’ and which I call social housing, rural broadband, sustainable energy, new transport systems and much more.

All such investment could be coordinated through a National Investment Bank. It would issue the bonds to pay for this essentially fiscal stimulus. The Bank of England could buy them to keep cash supply going, the one success of QE to date. By happy coincidence, the cost of the resulting funding for investment would be the lowest possible at present.

So would it work? My answer is ‘Yes’. It could create inflation by creating demand for labour and so delivering real wage increases, which is what we need. Can that inflation be controlled? Of course it can; housebuilding can be stopped at the end of the street.

Will it deliver growth? Yes. Indeed, Standard and Poor’s estimates the multiplier effect on infrastructure in the UK could be as high as £2.50 for each £1 spent within just three years. Tax recovered would give a payback on investment over the same timescale, near enough. We would have the infrastructure for the long term. That is why Pritchard-Evans says: ‘QE as we know it is dead. It is an urgent national imperative to craft a radically new form before the next crisis hits.’ I agree. And it has taken Jeremy Corbyn to notice the fact.

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Richard Murphy is professor of practice in international political economy at City University and director of Tax Research LLP

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No

John Mann

‘People’s quantitative easing’ sounds like a dose of medicine that must be for good for the health of the nation. In fact it has the opposite effect. Its origins stem from monetarism and is a variant of concepts developed from the philosophies of Milton Friedman and the Chicago school of economics.

It is an emergency option in a period of financial meltdown, but it is a rightwing answer for today.

‘People’s QE’ works by boosting the private sector. This will most likely be through infrastructure expenditure, but will be at the expense of higher inflation. As the governor of the Bank of England said last month, the losers from ‘people’s QE’ are the poor, the elderly and the vulnerable.

‘People’s QE’ is therefore a misnomer that needs correctly labelling. It would be more accurate to describe it as ‘large private sector multinational QE,’ for these are the direct beneficiaries.

Some are taking it a dangerous step further by questioning the need for an independent Bank of England and recommending a huge devaluation. Some mavericks on the Tory right, such as Steve Baker MP, go further using the same logic and question the role of the state at all in money supply. All are options if what matters is the money supply, but this is not the real economy.

Ken Livingstone argues that devaluation will work as it makes our exports cheaper. But it makes our imports more expensive and we are import-hungry consumers; inflation will be fuelled. Devaluation is a fake panacea to underlying issues in British manufacturing, productivity and innovation.

Printing money in this way will always damage the immediate standard of living of those who are on fixed incomes and those with an occupational pension. Postal workers, local government workers, the NHS, teachers and the mineworkers’ pension fund will all be the automatic losers.

As we have learned with private finance initiatives, there is always a cost to such government intervention, often disguised. And, while the economy ultimately balances itself, consideration must be given to whether the negative impacts are a cost worth paying.

But there is another option which has already been proposed by Paul Krugman, Danny Blanchflower and others: use simple Keynesian economics to provide an alternative to austerity. With our current record low interest rates they argue that we can afford to simply pay off the deficit at our leisure, not by making drastic cuts today, but by growing the economy and using this growth to pay off the national debt over a longer period of time. Like the mortgages that many of us are tied to, we have to be able as a country to service the debt, but that is considerably easier in a period of continued low interest rates. Simple Keynesian economics works where monetarism and its simplistic panaceas fail.

So are we to be a monetarist party, inspired by the Chicago school, or a Keynesian party inspired by and responding to the real economy?

‘People’s QE’ is the use of monetarism to boost the economy, paid for by the poorest in society. Simplistic, nationalistic solutions have not worked before, are not working today and will not work tomorrow. Let’s not be blinded by the same old medicine being fed to us in a different-shaped bottle.

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John Mann MP is a member of the Treasury select committee

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