Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.
Thursday 3 November 2016
Does it matter that QE increases inequality?
There were several mistakes in this article, so I’ve deleted it and re-written it.
I would look at it slightly differently: while QE has proved a failure if (which is highly debatable) its intention was to stimulate the real economy and create jobs and improve the lot of ordinary people, one thing it has proved is that if necessary, the CB can create the wherewithal ab nihilo.
As Warren Mosler often quotes Bernanke telling Congress: "....we just marked up the accounts with keystrokes on the computer".
So, the veil is lifted, the bubble is burst, the myth that we are constrained by revenues is over (again). The exact details may differ slightly, but it's essentially the same for the BoE.
And if it can be done for QE, it can be done for the real economy (health, education, infrastructure, etc).
We just now have to dispel the myth that the CB is independent from government. Carney is disingenuous when he says it's not for the CB to address distributional issues. We know very well that the original QE would not have taken place if the then Chancellor (Darling) had not given it his blessing. All relevant issues would have been discussed at the time, as I'm sure they still are behind the scenes.
Generally speaking, it's a good idea if the right hand knows what the left hand is doing. It's certainly not a good idea to pretend that the right hand doesn't know what the left hand is doing.
What is required is for the government and the CB to put their heads together to address how best to stimulate the real economy and get to full employment without undue inflation.
Unfortunately, the ruling ideology makes that fairly unlikely in the immediate future.
Quite agree. I.e. it’s absurd having two different organisations, central bank and “politicians plus treasury” having a say on what the total amount of stimulus should be: makes as much sense as a car with two steering wheels controlled by two different people.
The only SLIGHT problem with combining central bank and treasury + politicians is that arguably gives politicians access to the printing press. But problem is easily dealt with by having some committee of economists determine the total size of a stimulus package, while strictly political decisions, like what % of GDP goes to the public sector, remains with politicians.
The way to do that was set out by Positive Money and co-authors here (p.10-12) in particular.
PM do not actually advocate spending £7000 per head on pumping money directly into the real economy(i.e printing money then fiscal spending it.).They are in facy only asking that a mere fraction of current QE be created and spent this way.They only want about £10 bn used in this way,which is just above 2% of total QE thus far.The £7000 per head figure bandied about is just for comparison/perspective purposes so the public can see the relative size of BoE interventions. Helen Goodman also made a very good point in her speech about the distributional effects of QE in the House of Commons recent debate on QE; She accused the BoE of being deliberately vague about the actual efects of QE.
“Were the Chancellor of the Exchequer to stand up at the Dispatch Box and say, in the Budget or the autumn statement, “I am giving £85,000 to the richest people in the country”, I think that even members on the government benches would be alarmed and concerned, and perhaps even slightly rebellious. But because it is being done by the Bank of England and is rather hidden, we are not seeing the same level of concern, and we need to see the same level of concern.”
I would look at it slightly differently: while QE has proved a failure if (which is highly debatable) its intention was to stimulate the real economy and create jobs and improve the lot of ordinary people, one thing it has proved is that if necessary, the CB can create the wherewithal ab nihilo.
ReplyDeleteAs Warren Mosler often quotes Bernanke telling Congress: "....we just marked up the accounts with keystrokes on the computer".
So, the veil is lifted, the bubble is burst, the myth that we are constrained by revenues is over (again). The exact details may differ slightly, but it's essentially the same for the BoE.
And if it can be done for QE, it can be done for the real economy (health, education, infrastructure, etc).
We just now have to dispel the myth that the CB is independent from government. Carney is disingenuous when he says it's not for the CB to address distributional issues. We know very well that the original QE would not have taken place if the then Chancellor (Darling) had not given it his blessing. All relevant issues would have been discussed at the time, as I'm sure they still are behind the scenes.
Generally speaking, it's a good idea if the right hand knows what the left hand is doing. It's certainly not a good idea to pretend that the right hand doesn't know what the left hand is doing.
What is required is for the government and the CB to put their heads together to address how best to stimulate the real economy and get to full employment without undue inflation.
Unfortunately, the ruling ideology makes that fairly unlikely in the immediate future.
Quite agree. I.e. it’s absurd having two different organisations, central bank and “politicians plus treasury” having a say on what the total amount of stimulus should be: makes as much sense as a car with two steering wheels controlled by two different people.
DeleteThe only SLIGHT problem with combining central bank and treasury + politicians is that arguably gives politicians access to the printing press. But problem is easily dealt with by having some committee of economists determine the total size of a stimulus package, while strictly political decisions, like what % of GDP goes to the public sector, remains with politicians.
The way to do that was set out by Positive Money and co-authors here (p.10-12) in particular.
http://b.3cdn.net/nefoundation/3a4f0c195967cb202b_p2m6beqpy.pdf
Note that the latter work advocates full reserve banking. But the latter PM system is perfectly compatible with the EXISTING bank system.
PM do not actually advocate spending £7000 per head on pumping money directly into the real economy(i.e printing money then fiscal spending it.).They are in facy only asking that a mere fraction of current QE be created and spent this way.They only want about £10 bn used in this way,which is just above 2% of total QE thus far.The £7000 per head figure bandied about is just for comparison/perspective purposes so the public can see the relative size of BoE interventions.
ReplyDeleteHelen Goodman also made a very good point in her speech about the distributional effects of QE in the House of Commons recent debate on QE; She accused the BoE of being deliberately vague about the actual efects of QE.
“Were the Chancellor of the Exchequer to stand up at the Dispatch Box and say, in the Budget or the autumn statement, “I am giving £85,000 to the richest people in the country”, I think that even members on the government benches would be alarmed and concerned, and perhaps even slightly rebellious. But because it is being done by the Bank of England and is rather hidden, we are not seeing the same level of concern, and we need to see the same level of concern.”
I didn't know about that 2% figure. That makes a huge difference. Where did you get that from?
Deletehttp://positivemoney.org/videos/introduction/waste-375-billion-failure-quantitative-easing-video/
ReplyDeleteSee 4mins 39 secs
Also here;
http://positivemoney.org/our-proposals/quantitative-easing-vs-sovereign-money-creation-infographic/