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

There is a magic money tree for governments with their own currency - and Cameron has already used it in quantitative easing for the banks - so why not for things that benefit everyone?

Prime Minister David Cameron is completely wrong when he says there is “no magic money tree” – there is for any government that has it’s own currency which it can issue in any quantity it likes; and for private banks which can create money – but only create it as debt. Cameron’s government, like the last government, has used it’s “magic money tree” repeatedly in “quantitative easing” to pad the banks’ reserves. There is no reason he can’t use it to create money for more worthwhile causes that benefit everyone.

Vince Cable is right that we need stimulus spending, but why should we borrow it from banks and hedge funds, increasing our debts, when the government can print it or issue it digitally instead? It’s created out of thin air either way. The financial crisis was the result of most money being created as debt - loans and mortgages - by the banks, combined with deregulation, as Australian economics professor Steve Keen points out (1).

The government should print money and spend it on green energy research, investment in infrastructure (transport, education etc), plus grants and zero or low interest loans to small and medium sized businesses. If that creates a little inflation, that's not so bad, as devaluation of the pound will also reduce the size of our debts denominated in pounds.

The British government’s 2% inflation target and reliance on borrowing rather than printing money are the result of over-sized banks that can donate to much to party funds. Nobel prize winning economist Ha Joon Chang points out that even IMF studies suggest inflation doesn't negatively affect growth till it reaches 8% - other studies say 20%. (2)

Some will immediately cry hyperinflation, but in actual cases of hyperinflation, like Weimar Germany or Zimbabwe, the causes were French military occupation and control of the steel and coal output of the Rhur valley, and international sanctions, respectively, combined with political crises, not printing money (3). The bank executives and hedge fund managers would like people to believe otherwise because they profit from other peoples’ debts and don’t want those debts shrunk by moderate inflation.

If the government won’t do that we still have one other option – set up lots of small local or regional savings and loans companies like the “Bank of Dave” (Burnley savings and loans) set up by businessman Dave Fishwick (4) – (5).

This also has implications for the debate on whether Scotland should become independent. One potential advantage of independence would be that Scotland could print it’s own currency and spend it how it chose whatever the City of London financial sector said.

(1) Steve Keen (2011) ‘Debunking Economics’, Zed Books, 2011

(2) = 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

(3) = Ha Joon Chang (2010) ‘23 Things They Don’t Tell You About Capitalism’, Penguin / Allen Lane, London, 2010, ‘Thing 6’, pages 51-62 of Allen Lane hardback edition

(4) = Burnley Savings and Loans, http://www.burnleysavingsandloans.co.uk/

(5) = Guardian 01 Mar 2013 ‘Bank of Dave: Fighting the Fat Cats; The Wedding Shop – TV review’, http://www.guardian.co.uk/tv-and-radio/2013/mar/01/bank-of-dave-fighting-fat-cats

Why government can print money and give it to ordinary people and small companies without hyper-inflation ; private banks issuing money as debts is as much creating money out of nothing as printing it is; ALL money is created out of nothing ; ALL money and debt exist only as agreed ideas and can be created or destroyed or revalued any way we choose to as societies

The supposedly hard-headed and realistic analysis of our current situation is that we are doomed to higher taxes and cut services until we can pay off our debts; and that no action by government can change this fact. This is the version of reality that suits the people who caused the crisis – big banks, hedge funds, billionaire speculators. It also suits the big parties in government who get donations to party funds from them.

So the people who caused the problem get to keep on getting big bail-outs at taxpayers’ expense while being able to avoid paying most tax themselves through tax havens and multinational corporate structures.

We are not dealing with a hard unchangeable reality, but with the confused idea that money and debt exist anywhere but in our heads. Banks can and do create money out of nothing as debt simply by issuing a loan or mortgage. Governments can create it out of nothing by printing it or by issuing loans or grants. These are the two main ways it has come into circulation for at least a century. Similarly lenders can “write off” some or all of a debt and it instantly vanishes.

And, no, there is no way to limit the amount of money issued to the value of goods and services created because that value is also a subjective judgement based on incomplete information – which is why stock market valuations go up and down constantly and lead to economic booms and busts.

To limit the amount of money in circulation to the value of the gold reserves of the world was one past method of limiting the supply, but it was a completely arbitrary one and the gold standard contributed to causing the Great Depression by limiting the amount of new loans that could be made by banks or grants by government.

So there is no amount of money which will accurately reflect the value of the economy.

Money and debt are not unchangeable realities but shared ideas. How much of them exists and how much can be created and how it should be distributed are all things that we can change in any way we want to if we collectively decide to. Getting enough people to realise this is the only hard part.

It isn’t too complicated for the majority of people to understand, as the banking lobby want us to believe. it’s simple. As the late American economist J K Galbraith, who served under President Franklin D Roosevelt, wrote “The process by which money is created is so simple that the mind is repelled.”

Governments printing money and issuing it as grants, or zero interest loans or low interest loans is no different from private banks issuing it as loans or mortgages, other than that government can take into account aims in lending other than it’s own fairly short term profit. It can consider what investments are important to develop our economy and society, reduce poverty or reduce environmental damage over the long term.

The usual scare story you will hear at this point is that if we print money it will cause hyper-inflation. It could, if you printed an amazing amount of it, but in reality hyper-inflation has pretty much never happened unless a country is also under economic sanctions (e.g Zimbabwe) or under occupation and with a large part of it’s economic output going to other countries after defeat in a war (e.g Germany after World War I when France occupied the Rhur valley and all steel and coal from there went to France) (1).

Studies done by the IMF and cited by Chang show no fall in growth rate from inflation until it reaches at least 8% per year, while less conservative studies put the rate at 20% (2).

While inflation devalues money it also devalues any debt, as debt is denominated in money – so the higher inflation is the faster debt shrinks; and that is why banks and other lenders want low inflation. The British and American governments are heavily in the pockets of banks and hedge funds who are major donors to the party funds of all the main parties.

The Conservative party in the UK for instance, gets more than 50% of it’s donations to party funds from banks, hedge funds and other financial sector firms (3). The new head of the Bank of England, which sets the official interest rate and regulates other banks, is a former Goldman Sachs executive (4). All three main UK parties leaders welcomed his appointment enthusiastically.

Australian economics Professor Steve Keen has also shown that a major cause of the financial crisis is most money having been created as debt by private banks, with a recession resulting when the amount of debt issued is so great that the debtors can no longer repay it and the lenders will no longer issue new loans or forgive it, resulting in a crisis of confidence among both consumers and lenders. He suggests government printing money and giving it to debtors to pay off their debts (5). This would certainly solve the immediate crisis, but it wouldn’t stop the cycle starting all over again.

Only nationalised banks printing money and issuing it as grants and low or zero interest loans can do that. Of course it would still be unwise to issue infinite amounts of money without any checks on whether money issued as a loan or grant will increase government revenues or reduce it’s costs in future. So government controlled banks, after helping debtors pay off their debts and paying off it’s own debts by printing money, would have to ensure that some of it’s loans were issued to get a return, while others would be issued as grants for purposes other than getting a financial return, with the former funding the latter in the long term.

This is an idea which transcends the normal political divisions – there are even some Conservative MPs in the UK who are proposing something very similar.

I’m not sure that the Money Reform Party are right in suggesting that private banks issuing loans should be made illegal. That could have it’s own risks in making it impossible for businesses that don’t donate to party funds to get loans at reasonable rates , but we certainly need at least one government owned bank in each country creating money as loans and grants for government spending, for loans to small and medium sized businesses and to help people out of debt.

The reality is that we have plenty of options for paying off the debt and reducing poverty and inequality in our society, just not ones that these dominant players like. They would much prefer we sign up to the idea that it’s all unchangeable and that the hard reality is that we have to keep on issuing and distributing money primarily in ways that benefit them, even if it’s at huge cost to everyone else.

They have even got governments to legalise a ‘futures trade’ in food which allows them to basically bet that the price of a particular type of food will rise, before buying and stockpiling lots of it to ensure it does rise. This is at a cost of increased food prices which can mean hunger or death for people across the world, including in Haiti where for many years it has become common for parents to buy ‘mud cakes’ of clay and salt to fill their childrens’ bellies when they can’t afford actual food.

While things are not nearly that bad for most people in the developing world we continue to see poverty at levels where people must often choose between for instance eating or heating their home many days in winter; and governments are taking benefits away from the genuinely disabled and forcing the unemployed to work unpaid for big companies. Most of those who can get full time work are working harder and longer hours for the same or less pay. Millions can’t get work at all, or can only get part-time work when they want full-time.

The billionaires and the big firms (including many newspaper owners), along with the heads of the big parties they donate to the election funds of, have successfully redirected many peoples’ anger at the situation away from themselves – those with the actual power and money who are actually causing the problem – and onto public sector employees and benefits recipients – including the unemployed and the disabled.

Every time you are told that we just have to face up to the reality that we and our grandchildren will have to pay off our current debts and suffer for the actions of the banks, you are being lied to and fed the line those banks want you to believe. Don’t believe it – and tell others the truth.

(1) = Ha Joon Chang (2010) ‘23 Things They Don’t Tell You About Capitalism’, Penguin / Allen Lane, London, 2010, ‘Thing 6’, pages 51-62 of Allen Lane hardback edition

(2) = 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

(3) = BBC news 09 Feb 2011 ‘More than half of Conservative donors 'from the City'’,
http://www.bbc.co.uk/news/uk-politics-12401049 (headline is inaccurate, should read ‘donations’ not ‘donors’)

(4) = Guardian 03 Dec 2012 ‘New Bank of England head will have too much power, warns insider’, http://www.guardian.co.uk/business/2012/dec/03/bank-england-head-power-new

(5) = Steve Keen (2011) ‘Debunking Economics – Revised and Expanded Edition’, Zed Books, London and New York

Nick Clegg's claim that the Coalition government's policies won't hurt the poorest most is hopelessly unrealistic

Deputy Prime Minister Nick Clegg has disputed the Institute of Fiscal Studies’ analysis, which found that government policies will hurt those on low incomes most (1).

He claims tax cuts will lead to economic growth which will create jobs, increasing the incomes of the poorest as they are employed. This is wishful thinking. Even the most enthusiastic advocate of this theory would have to admit that in the past such policies have never ended mass unemployment, which rose under both Reagan and Thatcher.

Even the government influenced Office for Budget Responsibility estimated over 600,000 public sector job losses by 2015, with 700,000 more made unemployed due to knock on unemployment in the private sector due to reduced demand (2) – (3).

Clegg is claiming that unemployment will fall under a government which is going to be sacking hundreds of thousands of public sector employees, both directly and by cutting funding to local councils.

This is combined with public sector pay freezes (effective pay cuts taking inflation into account) and benefit cuts, including changes in the way inflation is calculated for increases in benefits and pensions, so both will effectively rise more slowly than inflation and be cut in practice (4).

Only full employment and everyone working for life could avoid benefit cuts and unfair taxes hurting the poorest (including the poorest pensioners). Neither Clegg nor his coalition partners have guaranteed that.

There will be a lot more special pleading from Cameron, Osborne and Clegg on how the debt left to them by Labour makes these measures unavoidable if the debt's to be tackled.

This lacks all credibility while they continue to provide unlimited funding to grossly over-priced ‘Private Finance Initiatives’ and ‘Public Private Partnerships’, keep pretending Britain can afford it's own nuclear deterrent and keep subsidising privatised rail companies (as well as BAE arms exports through arms credit export guarantees) ,just like the previous government.

It would also be interesting to know how they can afford big cuts in corporation tax for all companies, including the biggest multinationals, if the public finances are in such a bad state that they're cutting benefits for the poorest (5).

How is it that the poorest are once again being made to pay most in cuts, while taxes for the biggest companies are being cut?

If the job cuts in the public sector do lead to knock on job losses in the private sector and another recession, the result will not have been to reduce the debt or increase tax revenues, but to increase it massively as tax revenues collapse in another recession. This is a scenario seen as a serious risk by most economists – and all the more likely because Angela Merkel’s government in Germany and Nicholas Sarkozy’s in France have adopted similar policies – and the rest of the EU is one of the largest markets for British exports.

 (1) = BBC News 25 Aug 2010 ‘Nick Clegg slams 'partial' IFS report on Budget’,http://www.bbc.co.uk/news/business-11086137

(2) = BBC News 30 Jun 2010 ‘Forecast suggests 600,000 public sector jobs to go’,http://www.bbc.co.uk/news/10457352

(3) = guardian.co.uk 29 Jun 2010 ‘Budget will cost 1.3m jobs – Treasury’,http://www.guardian.co.uk/uk/2010/jun/29/budget-job-losses-unemployment-austerity

(4) = Observer 04 Jul 2010 ‘Public sector pensions lose £20,000 as calculations switched to lower index’, http://www.guardian.co.uk/society/2010/jul/04/public-sector-pensions

(5) = Guardian 22 Jun 2010 ‘Budget 2010: corporation tax slashed to 24p’,http://www.guardian.co.uk/uk/2010/jun/22/budget-2010-corporation-tax-slashed-to-24p