Thursday, 8 October 2015

Departing IMF chief tumbles to the merits to peoples’ QE.

Given that the IMF was advocating austerity at the height of the crisis, I’m not sure why anyone should pay much attention to IMF staff. But anyway, the outgoing chief economist at the IMF, Oliver Blanchard seems to have tumbled to the merits of peoples’ QE.

To judge from reports of his speech (I can’t find a transcript of the actual speech) and like many other advocates of PQE, he unfortunately seems to advocate spending the relevant money on infrastructure. That is, he hasn’t yet tumbled to the point that infrastructure spending is not a clever way of combating recessions, and for the blindingly obvious reason that while there are some infra projects that are shovel ready, it often takes years to get infra projects going. Plus stopping them before completion is normally pretty daft. Plus in the particular case of the UK, the requisite skills are not instantly available.

In short, “print and spend” is a perfectly viable way of dealing with recessions, as pointed out by Keynes in the early 1930s. However, the spending should be fairly widely dispersed, not concentrated on particular items like infra. Indeed Positive Money have long advocated "print and spend" with the spending being allocated to a fairly wide selection of items - at least certainly not concentrated on just one item like infra.

I’ve made the above point about in inappropriateness of infrastructure spending as a means to combat recessions about a hundred times. And doubtless I’ll have to make it another hundred times before so called “professional” economists understand the point.

Getting simple ideas into the heads of so called professional economists is often a bit like getting thru a two foot thick concrete wall with a jack hammer.

And that is not to suggest we shouldn’t spend far more on infra: perhaps we should. But if there’s going to be a big increase we ought to build up that increased spending level over a period of years.

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