I can’t say I really trust central bankers. The incentives on them are to over-expand, and create rising prosperity which reflects on them and their political masters. Often they do not even realise they are doing it. But the trouble is that it takes increasing doses to maintain the high, and when you ease off you get a hangover – and real people lose real wealth.
Never mind dashing away the punch bowl – don’t serve booze in the first place. Keep the economy sober so people can make rational investment decisions.
When you do eventually crash after the previous excesses, I agree that you need to boost the money supply fast – because just as the banks create money in the upturn, they destroy it equally fast in the downturn, and you have to replace at least part of that to bridge the way from the downbeat to the upbeat without, hopefully, hitting the bottom.
I don’t think we have a QE system that actually gets cash where it’s needed, though. It goes into assets, which is fine for people with assets, but lesser mortals are left high and dry. In the UK, it basically goes into buying up government debt. But like the rest of us, the government can’t get out of a fix just by stacking up more debt.
And then you have to be prepared to take all this money out of the system when things start to turn around so you don’t get inflationary pressures building. It might be repressed inflation – where the monetary expansion is actually distorting investment decisions, but people are still too nervous to put up prices. But it is still destructive. Again, there is little incentive on a central bank to restrain itself at this point.
I do worry whether the UK’s spectacular recovery is in large part due to all the QE we have done (larger, proportionately, than America’s). A recovery built on the same thing that brought us the last boom-bust episode. The trouble is, it’s hard to know. You could, of course, rely on the market to tell you, as the market probably has a better collective idea than most monetary officials. But that would mean giving up the monopoly control of money. Central bankers aren’t going to volunteer for that (though crypto-currency may do it for them).
Europe’s monumentally appalling problems are because they have the same boom-bust problems, but a) a bunch of economies that are state-dominated and fat and under-performing, not the best formula for a recovery, and b) countries that should adjust but are locked into the euro so they can’t, and c) a complete inability to take on-time monetary decisions anyway because of all the political differences. Sell your shares in the EU!
Austin Healey is arguing that the solar feed in tariff should stay at some gloriously elevated level because:
Mr Healey visited 10 Downing Street to argue the case for a U-turn of the proposed changes last week. The Government currently spends £26bn a year subsidising the fossil fuel industry and £3.5bn on solar: “We think the drop in the tariff is draconian,” said Mr Healey.
The Telegraph helpfully linking that statement to this excellent piece by our own Sam Bowman.
When you read the report, it becomes clear pretty quickly that the IMF’s definition of a subsidy is a little different from everyone else’s.
Usually, subsidies describe the government paying money to a firm or industry to encourage production, ostensibly to reduce prices for consumers. Think of the EU’s Common Agricultural Policy, or the cash given to the British steel industry during the Sixties and Seventies.
These are unpopular with economists. Subsidies end up making firms bloated, inefficient, and more interested in satisfying government bureaucrats than their customers. And those customers still end up paying for those subsidies with their taxes.
But the IMF’s idea of “subsidies” to fossil fuels refers to something completely different. They have taken the indirect costs to society of using energy – air pollution, traffic congestion, climate change – and, if governments haven’t imposed special taxes on one, called it a “subsidy”.
That is, Healey’s statement is not actually true, not within the normally accepted meaning of the word “subsidy”.
But there’s more to it than that. The government does not in fact spend £3.5 billion a year subsidising solar. Rather, it insists that solar should be able to overcharge us for their production. And what is being decided now is that that insistence on the consumer being gouged is to end, or at least decrease.
Yes, it’s very definitely a subsidy, a subsidy arising as a result of government action, but it’s not government spending upon such subsidy. It’s government market rigging to provide it. And the equivalent sum over on the fossil fuel side is, in the best gloss one can put on it, an absence of government rigging the market to account for externalities.
Not all subsidies are the same.
It’s entirely possible that the man from the Post Office is right here. That instead of banking when in credit being free, with high charges for not being in credit, it would be better to have a system where all get charged the costs of their activities. Entirely possible that he’s right:
Free bank accounts are unfair to poor customers and form an unsustainable foundation for the banking system, according to Post Office Money’s chief executive, Nicholas Kennett, who wants to see the industry charge customers regular fees instead.
He believes it is unfair that customers who have to use their overdrafts are charged high fees, which are then used by the bank to offer free accounts to the better-off who rarely pay any fees.
We also have a system to work out whether he is right:
While this may mean that customers who never incur fees and charges are well-served, he argues that charging customers for the services they use would be fairer overall and lead to better service for more account-holders.
In his case, the Post Office offers an account which costs £5 per month and will not let customers rack up unexpected overdraft fees.
Excellent. So, those who think that is the better system will flock to the Post Office to gain access to that better system. Those who do not will not. No one need do anything else. The alternatives exist, all are free to choose between them so choose people will. Which is the best system thus being not something that we can determine a priori, but something emergent from what people do.
You know, this market stuff?
We think it’s very nice of the Guardian’s subeditors to offer us this opportunity to point to and giggle at Polly Toynbee:
Only the BBC could give us Bake Off and Strictly. We must protect it
Because someone, somewhere, was always going to attach that headline above to it.
Yet there’s more to this than just a giggle. For it betrays Polly’s very patrician idea of what the State is for. It is to provide the entertainments, the diversions, which stop us plebs from rising up and throttling said patricians. Rather than our view of what said State is for, which is to do those few things which both must be done and can only be done by government.
And what really grates is that at least the Romans insisted that it was the patricians that paid for the bread and circuses, Polly’s insistent that we must be charged for what she insists we must have:
If the BBC is to be truly independent, it should have written into its charter a permanent guarantee that it will always get a licence fee uprating to cover inflation – so as to keep off the interfering hands of governments, and all the threats and snarls that besiege it from Westminster.
In 100 pages, the BBC defends in detail its need to do the things heavily targeted by its enemies as ripe for selling off. But no commercial channel approaches Radio 1’s 65% new and live music, or the breadth of Radio 2’s specialist niche music. Radio 3 has depth and range but only 10% repeats, compared with unadventurous Classic FM’s 40%.
Read this document when it goes online at midday today and be amazed at what our public broadcaster does for so little cost. It’s a fine reminder of what you get for £12.13 a month,compared with Sky’s average bundle at £61 a month.
If we want it then we’ll buy it, thank you so very much, Lady Bountiful.