This policy's fatal flaw is the left-winger's belief that government money should be spent on his pet schemesby Anatole Kaletsky / September 8, 2015 / Leave a comment
Read more: Can ‘Shy Cooper’ voters defeat Jeremy Corbyn in the Labour leadership race?
Whatever you may think of Jeremy Corbyn, he has a point about economic policy. Actually he has two good points and one bad one. Corbyn has been right about what he called People’s Quantitative Easing, a potentially transformative idea for restoring economic prosperity that was proposed years ago by several radical economists but has never taken seriously in Britain until it became the centrepiece of Corbynomics.
Corbyn has also been right about the problem to which PQE is a convincing response—the fallacy that government can do nothing more to strengthen Britain’s pitifully slow post-crisis recovery because “there is no money,” in the fateful words of Liam Byrne. In fact, there is more money available to the British government today than ever in history, since the Bank of England has been printing the stuff like wallpaper.
The problem, and the fatal flaw of Corbynomics, has been Corbyn’s belief that the government money which is easily available should, or even could, be spent on his pet schemes to nationalise industries, create public sector jobs, eliminate student fees, increase social spending and generally build a Workers’ Paradise.
Corbyn is right to maintain that the Bank could create more money out of thin air and channel it into the economy more effectively and equitably than it has through its misguided policy of what might be called “conventional” Quantitative Easing (QE). But the moment that Corbyn suggests that this newly created money should be used as a political slush fund for government to spend on whatever it fancies, the conjured-up wealth turns to dross and a coherent economic policy turns into a recipe for the next Labour financial disaster.
This paradox arises because monetary policy does not affect the economy directly, but only through the actions of consumers, businesses, workers and investors. QE can stimulate growth and employment, or merely create inflation, or have not much effect at all, depending on how newly-created money is channelled from the Bank into the bank accounts of the people and businesses who make decisions on spending and investment.
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