Many respected economists say Corbyn’s ‘Peoples’ QE’ plan to issue money to invest in ways that could create economic growth is a good one

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

(5) = https://en.wikipedia.org/wiki/Steve_Keen

(6) = https://twitter.com/profstevekeen/status/629411010542223360

(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

(8) = CNBC 18 Aug 2015 ‘‘People’s QE?’ Left-wing leader’s plans for the UK’,
http://www.cnbc.com/2015/08/18/peoples-qe-left-wing-leaders-plans-for-the-uk.html

(9) = FT Alphaville blog 06 Aug 2015 ‘ Corbyn’s Peoples’ QE could actually be a decent idea’,
http://ftalphaville.ft.com/2015/08/06/2136475/corbyns-peoples-qe-could-actually-be-a-decent-idea/?Authorised=false

(10) = BBC News 30 Jun 2015 ‘UK's economic growth revised up’, http://www.bbc.co.uk/news/business-33323999

(11) = BBC News 15 Jul 2015 ‘UK unemployment rises for first time in two years’,
http://www.bbc.co.uk/news/business-33535114

(12) = Ha Joon Chang (2010) ‘23 Things They Don’t Tell You About Capitalism’, Penguin / Allen Lane, London, 2010, ‘Thing 6’, page 55 of Allen Lane hardback edition

Greece needs a tide-over loan from the rest of the EU – not free-market fundamentalism

and harsh budget cuts there could stall economic recovery in Greece and across the EU

Strikers in Greece demonstrate against public pay freezes and public spending cuts imposed by the Greek government due to pressure from the EU and currency speculators targeting the Euro. (Photo by Petros Giannakouris/Associated Press)

With the EU currently enforcing big cuts on the Papandreou government in Greece there’s a serious risk of turning recession there into depression – and of it spreading across the EU. Sacking lots of public sector workers or cutting their pay is not going to help end the recession – and those economic problems wouldn’t just affect Greece, but the entire EU, which trades with it. What’s more the cuts may well not end currency speculation on the Euro – if they create a depression they might increase it and create another recession across the EU just when it’s economy is starting to recover.

There’s also a risk of forcing Greece to leave the Euro, as the majority of Greeks won’t back these kind of extreme cuts or the kind of economic depression likely to be caused by them.

As Nobel prize winning economist Joseph Stiglitz points out there is no danger of Greece defaulting on it’s debts and it’s government does not have significantly higher debts as a proportion of it’s GDP than the big three in the EU – Britain, France and Germany. Stiglitz also points out that France has broken EU rules on debt exceeding 3% of GDP without having the same scale of cuts enforced on it – and that a large part of the problem is speculation in currency markets on the Euro. He also points out that Greece is in no worse a position economically than the US is currently (1).

Stiglitz has also compared the speculators’ attack on the Euro to that on the pound in 1992 and on Asian currencies in the 1997 Asian financial crisis (2). The solution, he says, is for the rest of the EU to come to Greece’s assistance to ensure the speculators’ gamble doesn’t pay off and avoid a deeper recession which would also damage market confidence, possibly by changing interest rates on the loans and intervening in the stock market (3).

Update - 11th February 7p.m.:

The EU seems to have decided that their ‘aid package’ to Greece will amount to a statement saying they back the Greek government, some vague talk of ‘co-ordinated measures to defend the Euro’ and
a demand that Greek budget cuts continue, along with a suggestion that Greece go to the IMF for money. The IMF might have changed its spots, but has a history of making its loans conditional on privatisation and public spending cuts. There have been suggestions that the EU statement might mean low interest loans provided jointly by the EU and the IMF, which would be slightly more hopeful, but no-one has confirmed this (1). (4).

No wonder the speculators don’t seem to be deterred.

The EU needs to provide concrete help to Greece, possibly by new low interest loans or grants - and stop demanding budget cuts on a scale that the British, German and French governments would rightly never consider in their own countries - particularly during a recession.

(1) = guardian.co.uk 25 jan 2010 ‘A principled Europe would not leave Greece to bleed’, http://www.guardian.co.uk/commentisfree/2010/jan/25/principled-europe-not-let-greece-bleed

(2) = Telegraph 08 Feb 2010 ‘Greek crisis intensifies as Joe Stiglitz calls for Europe to 'teach the speculators a lesson'’,
http://www.telegraph.co.uk/finance/economics/7191113/Greek-crisis-intensifies-as-Joe-Stiglitz-calls-for-Europe-to-teach-the-speculators-a-lesson.html

(3) = BBC News 03 Feb 2010 ‘Joseph Stiglitz on Greece: 'Speculators pose risk'’,
http://news.bbc.co.uk/1/hi/business/8496770.stm

(4) = guardian.co.uk 11 Feb 2010 ‘EU leaders reach Greek bailout deal’,
http://www.guardian.co.uk/business/2010/feb/11/eu-summit-greece-bailout-imf