Wednesday, 13 November 2013
Positive Money’s latest publication.
I like it. Although I’ve only skimmed thru it. It’s jargon free and waffle free: i.e. it’s written in plain English.
The authors advocate the combination of fiscal and monetary policy: i.e. they claim that come a recession, the government / central bank machine should create new money and spend it into the economy (and/or cut taxes). Incidentally, that has been PM policy for some years now.
They are well aware that the latter idea is not new: i.e. that there are numerous historical examples of the idea being put into effect. And some of the historical examples were new to me.
They get the point that central banks have been forced into bizarre forms of monetary stimulus like QE because of a refusal by politicians to countenance enough fiscal stimulus (i.e. large enough deficits). And apart from QE, in the UK we’ve been the lucky(?) recipients of other bizarre forms of monetary policy: e.g. Funding for Lending, and Help to Buy.
On the downside, I didn’t agree with the idea that governments should allocate new money to SPECIFIC types of spending (they advocate house building amongst other things). The problem there is that, as the authors rightly point out, new money is a form of stimulus and the amount of stimulus needed varies hugely from one year to another. Thus if new money / stimulus is allocated to SPECIFIC sectors of the economy, the amount spent on those sectors will gyrate from one year to the next.
And there’s an additional problem with housing. What happens when a series of houses are half built and it’s decided that stimulus is no longer warranted? Hundreds of building sites close down, and houses are left half-built? That doesn’t sound like an efficient allocation of resources.
Anyway, at least eight out of ten to the authors. I’ll read this publication right thru rather than simply skimming thru it at some stage.
P.S. (15th Nov): Re central banks being forced into “bizarre forms of stimulus” the new head of the Fed made a very similar point recently.