Munchau
argues in the Financial Times today that the EU needs some QE amongst other
reasons because of “a lack of further policy tools”.
Yer what?
No alternative to stuffing yet more
money into the pockets of the rich? No alternative to trying to force interest
rates lower when they’re already at record lows?
There is actually a far better
alternative: it’s to put money into the pockets of EU consumers: in other words
create new money and spend it (and/or cut taxes). Those consumers (revelation
of the century this) would then go out and spend, which in turn means more
employment. And for those with a fetish about investment (which seems to include
Munchau), some employers would invest more so as to meet that extra demand.
Employers (next revelation of the
century coming up) invest when they see demand for their products. In contrast,
interest rates are relatively unimportant. Or as J.K.Galbraith
put it, “firms borrow when they can make money and not because interest rates
are low”.
Next to Munchau’s article, and very
appropriately, there is an article
lamenting the standard of economics teaching. In reference to economics
students the article says “They are embarrassed when they are no more able to
explain the Eurozone crisis or persistent unemployment then their fellow
students in engineering or archaeology.” Quite.
Also there is no reference in Munchau’s
article the MAIN EZ PROBLEM, namely the disparity in competitiveness as between
core and periphery. Neither QE nor creating new money and spending it across
the EZ as a whole solves that problem. In contrast, Bill Mitchell addresses
that central EZ problem today.
________
P.S. (same day). Echoing Galbraith,
Japanese dumpling manufacturer Shuichi Takeda (what better authority do you
want?) said “..you don't borrow just because rates are low."
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