Thursday, 30 July 2015
OMG: Corbyn backs “peoples’ QE”.
Jeremy Corbyn, who looks increasingly likely to be the next leader of the Labour Party in the UK, backs the latest fad, namely “peoples’ QE”. The idea is nonsense.
“Peoples’ QE” consists of having the central bank print money (as per conventional QE), but instead of spending the money buying government debt, the money is spent on public investments like infrastructure. The idea is rubbish and for the following reason.
Printing and spending money is stimulatory. Second, the AMOUNT OF stimulus needed varies hugely from one year to the next: indeed, given an outbreak of irrational exuberance, the amount needed will be little or nothing. Hence if infrastructure spending is tied to money printing, the amount spent on infrastructure will gyrate far too much. You can’t start building a motorway and suddenly stop in year X because little or no stimulus is needed in that year.
In short, it may well be that we need more infrastructure investment, but that should be funded basically from the usual sources, namely tax and government borrowing. As to stimulus, printing and spending (and/or cutting taxes) is a perfectly good way of imparting stimulus (indeed, I think it’s the best way). But that additional spending should be spread as widely as possible precisely so as to avoid the above sort of “stop start” motorway building fiasco.
And that’s about the tenth time I’ve made that point. But sure as night follows day, there’ll be an eleventh and twelfth time. I won’t give up repeatedly demolishing popular myths till I die. And the headstone has already been ordered. It reads “Here lies Ralph Musgrave. He achieved little apart from demolishing a few popular economic myths.”