Saturday, 1 February 2014

International cooperation on QE?

Frances Coppola and Raghuram Rajan want international cooperation on QE because of the destabilising effect that QE has on developing countries.
False logic there, I suggest.
The problems caused in developing countries by QE and its tapering or unwinding does not demonstrate a need for international cooperation: it demonstrates the flaws in QE and the merits in the form of stimulus advocated (I think) by most MMTers and Positive Money: that’s simply creating  fiat money and spending it (and/or cutting taxes).
QE shovels money into the pockets of the asset rich or investors. Their obvious response is to seek yield anywhere in the world, hence the flows of hot money into or out of developing countries. In contrast, if fiat money is simply created and paid to say pensioners, or spent on infrastructure or education etc within a given country instead of implementing QE, most of that money stays within that country. Same applies if the new fiat money is distributed via tax cuts for the average household in the relevant country.
Moreover, if QE really is a sensible way of implementing stimulus, the mind boggles at exactly what the above “cooperation” would consist of. E.g. country X wants to do QE, but country Y objects because it doesn’t need stimulus. Now what’s country X supposed to do: abstain from stimulus and endure excess unemployment?
Of course you COULD implement capital controls, but that involves bureaucracy, and the idea that bureaucrats are good judges of what capital investments make sense is a joke.

1 comment:

  1. The capital controls/import controls you'll need to put in place are essentially auto-stabiliser brakes. Just like what they have on the stock markets to slow down a meltdown or excessive rise - either in a particular share or the whole market.

    You shouldn't prevent changes in real terms of trade, but if you slow them down so they occur over time then people have the chance to adjust.


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