Sunday, 6 September 2015
Peoples’ QE nutters.
Along with others, I’ve been trying to explain to supporters of PQE a VERY VERY simple flaw in the idea. Unfortunately, they’re extremely dense and just don’t get it.
Incidentally Peoples’ QE is an idea which is currently all the rage in the UK and it consists of having government print money and spend it on infrastructure, or spend nearly all of it on infrastructure. The idea is all the rage with Labour Luvvies, champagne socialists and windbags of all political persuasions.
I’ll explain the flaw in as simple language as I can.
First, printing and spending money is stimulatory. I’ll repeat that. Printing and spending money is stimulatory. (And if take too far, it obviously leads to inflation).
But in some years, little or no stimulus is needed. I’ll repeat that. In some years, little or no stimulus is needed. Got that?
Ergo . . . . . wait for it . . . . .if stimulus money is concentrated in one particular area – infrastructure or whatever – the result will be unacceptably large gyrations in the amount spent on those areas.
I’ll repeat that. The result will be unacceptably large gyrations in the amount spent on those areas. To illustrate, the result could be that contractors start to build a road, and then have to stop when the road is half complete. Barmy.
I’ll repeat that: B-A-R-M-Y.
The above, please note is not, repeat not, repeat not, repeat not to criticise either of the two basic elements in PQE: that is, first, more infrastructure spending and second, implementing stimulus via “print and spend” rather than in other ways. Indeed Keynes in 1933 said that print and spend was a perfectly acceptable form of stimulus.
I.e. what’s wrong with PQE is the COMBINATION of two perfectly good ideas where there is no particular reason to combine them. Worse still: they are not actually natural bed-fellows.
As Oxford economics prof Simon Wren-Lewis put it, “Putting the two ideas together right now is misconceived, and is in danger of discrediting two potentially good ideas.”