The article is entitled “Monetary Policy and Government Debt Management During the Coronavirus Pandemic”. (NIESR is short for National Instute of Economic and Social Research).
The abstract consists of just one sentence which reads, “This paper describes how the large budget deficits of 2020 in the US and UK . . . were financed . . . and how their ability to resist a post-coronavirus surge in inflation has been compromised."
The paper’s explanation as to why inflation could not be damped down is far from convincing. For a start, a large amount of damping could be achieved simply by reversing one of the the processes via which stimulus was implemented: QE. Allen does not mention that.
By way of trying to bolster his claim that containing inflation might be difficult, William Allen raises the prospect of governments putting pressure on, or overruling central banks (his 3rd last para). Well that’s a problem which has always existed, for example Donald Trump put pressure on the Fed. Allen does not explain why that should be more of a problem post Covid than at any other time.
Also central banks can raise interest rates. I’ve never known an instance of a central bank not being able to raise interest rates by as much as it wants, though I’m always happy to be corrected on that. But even if a CB can’t raise rates as much as it wants, there’s another way of damping down inflation, namely to raise taxes.
And Allen's final mistake comes in his last sentence which reads "If coronavirus reief programmes are not to be financed by the inflation tax, then they will have to be financed by other taxes."
Really? If people in the US and UK continue to move in what might be called a “Japanese direction”, i.e. continue to expand the amount of government liability (government debt and base money) which they are willing to hold at low or zero rates of interest, then what on Earth is the point of raising taxes and confiscating those assets from the private sector? If that was done, the private sector would then regard itself has having an inadequate stock of safe and liquid assets. It would then try to save in order to acquire its desired stock, and the result would be Keynsian “paradox of thrift” unemployment.
In short, Allen advocates enduring excess unemployment right now in order to ameliorate a problem which might or might not arise in two or three years time.
Close down the NIESR?
Maybe the NIESR used to be a worthwhile organisation, but nowadays I find it yawn provoking. Jagjit Chadha, head of the NIESR regularly puts stuff on social media which very few people respond to. Few people appear to be interested in his material.