Wednesday, 23 September 2015

Will Richard “Murphaloon” Murphy tell us what PQE consists of?

I ask because it is entirely unclear from the small print on his site exactly what “Peoples’ QE” does consist of.

Of course the small print and the details are of no interest to the chattering classes. And the amount of chattering surrounding PQE is deafening. But for the small proportion of the population able to sus the difference between details which stand inspection and details which don’t, there’s a problem with PQE, as follows.

I always thought (as did others) that PQE consists of having the state print money and spend it on infrastructure, or at least mainly on infrastructure (and perhaps also housing). Incidentally that CAN BE DONE via the proposed National Investment Bank, or not. That’s just a technical detail, or at least a separate issue.

However, Richard Murphy in the comments after this article of his recently DENIED that PQE would be concentrated on infrastructure and similar. That is, in answer to the point that CONCENTRATING new money on a specific area like infrastructure is problematic, he said:  “The work proposed has always been broadly based”.

So is PQE money concentrated on infrastructure (plus housing), or is it “broadly based”? Any chance of clarification on that point, or is Murphy too busy wagging his tongue to bother about inconsistencies like the above?

Why PQE money shouldn’t be concentrated on infrastructure.

The reasons why that concentration point is important are as follows.

First, while some infrastructure projects are “shovel ready”, a significant proportion take a year or two to get going, and more like ten years in the case of the HS2 rail project. So if you’re looking for a QUICK way of creating jobs in response to a recession, infrastructure should not be top of your list.

Second, printing and spending money is STIMULATORY (and if it’s taken too far, it’s inflationary). But in some years little or no stimulus is needed. Thus if stimulus spending is concentrated on any one area, like infrastructure, then the total spent on that area will gyrate far too much. To illustrate, it’s perfectly possible to start building a bridge or road, and then stop half way thru the project because no stimulus is needed in the year in question. But that sort of rapid change in spending is absurd.

Third, the skills needed for a large and sudden increase in infrastructure and house building just aren’t available, at least not at the drop of a hat.

If spending is broad based.

If in fact PQE money really is “broad based”, then PQE is not a very original idea. First, Keynes in 1933 proposed printing money and spending it in response to recessions. And more recently, advocates of Modern Monetary Theory (MMT), Positive Money and the New Economics Foundation have proposed “print and spend” as a solution to recessions.

And finally we’ve actually implemented “print and spend” on a big scale over the last three years or so in that we’ve implemented standard fiscal stimulus and followed that with QE, all of which nets out to “print and spend”. (Standard fiscal stimulus equals “government borrows £X, spends £X and gives £X of bonds to lenders. QE equals “the state prints £X and buys back the bonds”).


If Richard Murphy (affectionately known as “Murphaloon” by Tim Worstall) wants to stick to concentrating PQE money on infrastructure then he’s talking nonsense.

Alternatively, if he’s saying PQE spending should be “broad based”, then all I can say to the Murphaloon is “welcome to the world of MMT, Positive Money and the NEF.

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