Friday, 16 June 2017

Richard Murphy says print money like crazy and spend it on infrastructure.

Richard Murphy, affectionately known as “Murphaloon” in some quarters, argues that because we printed piles of money and spent it on QE (i.e. buying back government debt), ergo we can print about the same amount of money and spend it on green stuff, infrastructure, etc. Unfortunately that’s not true, and for two basic reasons.

First, it made sense to print money and spend it on whatever during the worst of the recession. That’s because in a recession, there is little danger of money printing leading to inflation. However NOW (i.e. in 2017) the economy is near capacity, inflation looms and the Bank of England is contemplating raising interest rates to deal with that inflation: the BoE Monetary Policy Committee voted against an interest rate rise at its last meeting, but the vote was fairly evenly split.

Second, the fact that we can print £Xbn and spend it buying back government debt does NOT MEAN we’ll get away with printing a similar sum and spending it REAL GOODS AND SERVICES. The latter results in the employment of far more people and is ipso facto more inflationary. I’ll explain.

Cash (base money to be exact) and government debt are almost the same thing, as pointed out by Warren Mosler and Martin Wolf. As Martin Wolf put it in reference to Japan, “But it is hard to believe replacing Japanese Government Bonds with money in private portfolios would make much difference. Central-bank money can also be thought of as non-interest-bearing, irredeemable government debt. But 10-year JGBs yield less than 0.5 per cent. So the difference between the two forms of government “debt” is tiny…”

Put another way, QE is not much different to the BoE giving everyone two £10 notes in exchange for their £20 notes. The latter “two for the price of one” offer clearly has little effect.

In contrast, printing money and spending it on infrastructure etc has a much bigger effect per £ on demand. And it’s DEMAND that pushes up prices if supply is not forthcoming.

There were doubtless underutilised resources during the worst of the recession: i.e. there was plenty of spare “supply”. That is not the case now.


Title of the Guardian article is: "Why we should print money to fund green investments".

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