The EZ needs QE, says Wolfgang Munchau.

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.

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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."