There are politicians and media commentators every day claiming that Jeremy Corbyn’s plan for Peoples’ QE is unrealistic and economically unfeasible. The policy would involve government issuing money to invest in public services and in loans and grants for small and medium businesses, in order to increase economic growth (1).
Former Foreign Secretary Jack Straw has claimed that basic economics tells us it won’t work. Yvette Cooper, one of Corbyn’s rivals for the post of labour leader, claims that as an economist she can say it would be disastrous (2) – (3).
Labour Shadow Chancellor Chris Leslie has even claimed that it would lead to both inflation and an increased national debt. That would be pretty surprising if it happened, given that inflation reduces the value not only of a nation’s currency but also its debts denominated in that currency, suggesting the Shadow Chancellor’s grasp of basic economics is somewhat shaky (4).
Gordon Brown's continuation of "light touch regulation" of the banks (a euphemism for the minimal regulation begun under Thatcher) led to the banking crisis. And his claim that he would "end the cycle of boom and bust forever" predictably turned out to be nonsense. So New Labour's economic credentials aren't exactly great.
Yet many highly respected economists, including some who predicted the banking crisis say it and Corbyn’s other anti-austerity policies would work – and work far better than the current UK government’s counter-productive ones.
Australian economics professor Steve Keen, who predicted the banking crisis, says it’s a good policy. Nobel prize winning former World Bank economist Joseph Stiglitz backs it and Corbyn’s other economic policies. So does Paul Krugman (5) – (8).
Even some columnists for the Financial Times have said the policy could work (9).
Critics of the policy say it would lead to inflation. It would lead to some inflation, but inflation is currently zero, while quarterly economic growth is under 0.5% and unemployment is 1.85 million on official figures and much higher in reality, as these figures are fiddled. So creating economic growth and jobs should be a much higher priority than inflation at the moment (10) – (11).
Ha Joon Chang, a South Korean economist who teaches in the US, wrote in his book ’23 Things They Don’t Tell You About Capitalism’ that one IMF study found inflation does not negatively affect economic growth or living standards until it reaches 8% - and that some other studies put the figure at 20% (12).
Of course that doesn’t mean unlimited amounts of money could be issued each year, nor that an eye wouldn’t have to be kept on the effects on inflation. But Corbyn has never suggested printing unlimited amounts of money. The plan is to issue money and invest it in ways that will lead to increased economic growth and so increased tax revenues. That would reduce our national debt, not increase it. This is, as the plans critics would say “basic economics”.
It’s also worth remembering that all the New Labour politicians criticising Corbyn and claiming knowledge of economics backed the deregulation policies New Labour adopted from the Conservatives, which led to the banking crisis, the worst economic disaster for the UK since the 1930s. And that that crisis led to Labour losing voters’ trust on the economy and the two elections since it. Taking their advice on economics would be a bit like taking advice on how to prevent fires from an arsonist.
(1) = Tax Research UK 03 Aug 2015 ‘Chris Leslie has got Corbynomics wrong’, http://www.taxresearch.org.uk/Blog/2015/08/03/chris-leslie-has-got-corbynomics-wrong/
(2) = Scotsman 13 Aug 2015 ‘Jack Straw adds voice to anti-Jeremy Corbyn chorus’, http://www.scotsman.com/news/uk/jack-straw-adds-voice-to-anti-jeremy-corbyn-chorus-1-3858368
(3) = www.guardian.co.uk 12 Aug 2015 ‘Yvette Cooper says Labour rival Jeremy Corbyn's policies not credible or radical’, http://www.theguardian.com/politics/2015/aug/13/yvette-cooper-jeremy-corbyn-policies-not-credible-labour
(4) = Guardian 03 Aug 2015 ‘Jeremy Corbyn to unveil public investment plan to end austerity’, http://www.theguardian.com/politics/2015/aug/02/corbyn-vision-2020-end-austerity-public-investment-plan?INTCMP=sfl
(7) = Guardian 27 Jul 2015 ‘Joseph Stiglitz: unsurprising Jeremy Corbyn is a Labour leadership contender’, http://www.theguardian.com/politics/2015/jul/26/joseph-stiglitz-jeremy-corbyn-labour-leadership-contender-anti-austerity
(11) = BBC News 15 Jul 2015 ‘UK unemployment rises for first time in two years’,