As Bill Mitchell (Australian economics Prof.) has pointed out a dozen times, the political
left is too dumb to do anything more than ape the economic illiteracy of the political
right.
But if the
political left really seriously wants those “radical” and “progressive”
policies it claims to want, but doesn’t have the guts or the brain to advocate,
they could try the following two.
1.
Nationalise the money production process.
There are
various problems with letting private banks create money - or “lend money into existence” as the
saying goes. One is that private bank money creation is pro-cyclical. That is
they lend like there is no tomorrow just when they shouldn’t: in a boom. And
they fail to lend just when we want them too, as you can hardly fail to have
noticed over the last two or three years.
So why give
them the freedom to lend money into existence at all? They only make a mess of
it.
2. Stimulating
an economy by stuffing the pockets of the rich (QE) is just brilliant, isn’t
it? I mean that’s got “socialism” written all over it, I don’t think.
Moreover, we’ve
been in a BALANCE SHEET RECESSION for the last few years. And the people with seriously
impaired balance sheets are households who have taken on too much debt. So to
get the private sector spending, stimulus should be channelled into the pockets
of ordinary households, no the pockets of the rich.
I don’t favour
of debt jubilees: that is artificial assistance for those in debt, paid for by
those who have acted responsibly. But certainly stimulus directed at ordinary
households would have more effect than stimulus directed at the rich.
Why does it
take someone on the political right like me, to tell the political left what to do?
Well Steve Keen, for example, has advocated giving everyone a chunk of money, with the proviso that those in debt use it to repay or reduce their debt. Those people not in debt can do what they like with it, so it's not a question of the irresponsible benefiting at the cost of the responsible.
ReplyDeleteEveryone benefits, and in addition, there should be a stimulus to the economy.
Hi Monty,
DeleteYes: assuming there is room for stimulus, then that stimulus could take the form of dishing out new money to all and sundry, with debtors forced to use the money to pay down debts. In that case the jubilee would not be at the expense of creditors.
On the other hand if an economy has no room for stimulus, then the only way of doing a jubilee is to extract money from creditors and give it to debtors. And with inflation currently in the UK over the 2% target, I don’t see that there is room for a huge amount of stimulus.
Next problem is that private debts are about equal to GDP. I don’t see any chance of even a tenth that much being printed and dished out before serious inflation kicks in.
Next, if debtors are forced to cut their debts, what’s to stop them subsequently ramping up their debts as soon as they are allowed to? After all, most people who incur debt do so so as to allocate their monthly spending in a way that suits them: the typical mortgagor is someone who doesn’t have enough cash to buy a house of the size they want, but DOES HAVE the income to pay interest on a loan that enables them to buy that house.
If the entire economy expands, and everyone allocates their income as between booze, holidays, cars, mortgage repayments etc etc in the same proportion, then given freedom to choose, mortgagors will INCREASE their debts, not reduce them.
On the other hand if households are in cautious mode, they’ll tend to pay off debt without anyone telling them to. 40% of the money that households in the US got from the payroll tax cut in 2011 was used to pay off debts. See:
http://libertystreeteconomics.newyorkfed.org/2013/05/my-two-percents-how-are-american-workers-dealing-with-the-payroll-tax-hike.html