Thursday, 25 April 2013
Simon Jenkins says give money to people, not banksters.
Simon Jenkins has had several articles arguing the above point – e.g. see here, here, and most recently, here.
The economy exists to provide ordinary people with what they want, both in the form of what people choose to buy for their own consumption and in the form of the publically provided serves they vote for at election time. And it is bizarre that it is necessary to remind even left of centre folk of the latter simple point.
In other words you can understand right of centre politicians stuffing the pockets of their bankster friends. But even the political left goes along with the daft idea that the economy can only recover via handing out money to the relatively well off: holders of government debt (QE). Plus the political left accepts the idea that public money must be used to encourage banks to lend to businesses rather than simply using the money to boost consumer spending (which of course would improve businesses’ turnover and hence enable businesses to borrow where appropriate).
There is only one potential problem with dishing out money to households namely that it could be difficult to withdraw when the need arises. However the latter point is very debatable.
First, the UK government adjusted VAT down and up a couple of times in the last few years. We didn’t have riots when VAT rose: in fact the silence was deafening.
Second, it’s not difficult to cut public spending. That, in contrast, does tend to give rise to objections. However as long as such cuts are in line with the manifesto of the political party in power, no one has any right to object.
Third, another way of withdrawing money from households in the UK is to raise National Insurance contributions. NI contributions are very similar to the payroll taxes that exist in other countries and which HAVE BEEN adjusted during the current recession.
Fourth, to the extent that it is difficult to withdraw money from the private sector via the above means, a government or central bank can always damp down excessive private sector exuberance via raise interest rate increases. Of course that’s a concession to exactly the sort of measure that Simon Jenkins objects to. But that concession does not invalidate the PRINCIPLE set out above, namely that the BEST WAY to adjust stimulus is via ordinary households. In short, the aim should always be to adjust stimulus that way, with QE, “funding for lending”, or interest rate adjustments being used only in an emergency or as back up.