Economic Reform Australia Blog

Try fiscal policy, stupid!

The Bank of England is actually finding it difficult to persuade investors to sell it sufficient government bonds to facilitate its planned bank reserve for government bond swap (sometimes called ‘quantitative easing’).

There is a problem with a lack of spending – not just in the UK, but throughout the high income economies, to a greater or lesser extent.

Yields (interest rates) on government securities are negative in some countries, and at record lows in others, such as the UK.

And yet governments still refuse to do what we know works, which is to SPEND more.

They are obsessed with the government as household myth.

And so central banks have to keep doing these desperate and ineffective monetary operations.

Everybody knows they don’t work. Central bankers know they don’t work. Only politicians and some of their more obstinate, head in the sand advisers, haven’t understood this by now.

And so we have more of the same, as they desperately try to convince a still over-indebted private sector to take on even more debt, and kick the problem further down the road.

This is a problem which is actually bigger in Australia than in the UK, and is nothing to do with Brexit, but of more immediate (and possibly medium term) significance than Brexit.

It doesn’t help that there is still at best a grudging and slight interest in these issues in the media.

Nobody is prepared to say that governments should be spending and investing more, and that there is no need to in the normal sense of the term ‘borrow’ to do so.

I recommend, as do many, a voluntary and equitable job guarantee scheme to eliminate involuntary unemployment, assist in regulating effective demand and inflationary pressure, and stabilise an unstable economy.

Right now, though, we also need more government investment.

Forget QE! It isn’t what people often describe it to be (‘free money’) and it doesn’t achieve anything worthwhile, even when performed on a record scale.

Outright monetary financing of government investment spending, done on a sufficient scale, would deliver.

Meanwhile, if you want a quick fix, just put some money into everyone’s bank accounts.

Easy to do.

And yes, UK Conservatives and Australian Liberals, you very definitely could afford to do it.

It might even make you popular, and right now would not be inflationary.

Steven Hail