The real problem with Corbynomics and Peoples' QE


There's a number of problems with this idea central to Corbynomics, this Peoples' Quantitative Easing. It's illegal for a start, being simply monetisation of fiscal policy. It won't work as planned simply because any independent central bank would alter other monetary policy so as to accommodate the change. It's not possible to remove central bank independence because that is again illegal under EU law. And of course there's the killer blow, which is that it was designed by Richard Murphy. We therefore know that it is wrong, we just have to work out why in this particular instance. Allister Heath points to another problem, one that has been occurring to us too:

... financed by “People’s QE”, another of Corbyn’s idiotic schemes. The Bank of England would restart its quantitative easing (QE) programme but instead of buying gilts, newly-minted money would be spent on government infrastructure programmes.

Down that road lies catastrophe: monetising public spending, by eliminating the Government’s budget constraint, frees politicians from the restraints of reality. But the escapism is only ever temporary. If enough money was printed, inflation would make a comeback.

Murphy's answer to this idea that simple monetisation of fiscal policy would increase inflation is to insist that we are all missing the importance of taxation. Yes, true, increasing the money supply would, ceteris paribus, increase inflation. But government could then reduce aggregate demand by increasing taxation. So, there, you see, it all works!

At which point we wonder why the use of the magic money tree in the first place. The end result will be that, to erase the effect upon inflation of the increase in money, taxes will rise. That is, there's no difference here between PQE and the more traditional tax the heck out of the population and get to spend it all on lovely things.

We also have another worry. Which is that we all know that politicians like spending our money like those drunken sailors on shore leave. But the insistence that there's at least some, occasional, relationship between how much they gouge out of us and how much they spend does produce some limit on their profligacy. Remove that limit and let them print whatever they like and, then ask them to raise taxes to stop the resultant inflation. Well, who does believe that inflation will be a sufficient reason for them to raise taxes sufficiently? It's not exactly what has happened anywhere else government has resorted to the magic money tree, is it?