Scott Fullwiler — Corbynomics 101—It’s the Deficit, Stupid!

The proposal obviously counters the austerity mantras going around in British politics (not to mention most other places), though Corbyn himself has paid lip service to balancing the budget, as well. The controversy, beyond the typical concerns with greater government spending of austerians, are fairly predictable for anyone who has taken a standard macroeconomics course (usually with a textbook written by someone who didn’t see the financial crisis coming)—

• first, the often heard QE = “printing money” = massive inflation argument is pervasive here with regard to PQE, as well;

• second, there are substantial concerns being voiced that “forcing” the BoE to finance the NIB will undermine the “independence” of the central bank and monetary policy;

• third, PQE gives the government free reign to spend by eliminating the need to fund its deficits in the financial markets.

So, here I want to look at the accounting and some basic operational realities of this proposal in order to understand how PQE does or does not do what the naysayers say it will.….

Leave it to Scott to tie things together in a neat bundle showing the accounting. Everything anyone wanted to know about PGE and a lot more. Hope the Corbyn people pick up on it and run with it.

New Economics Perspectives
Corbynomics 101—It’s the Deficit, Stupid!
Scott T. Fullwiler | James A. Leach Chair in Banking and Monetary Economics and is an Associate Professor of Economics at Wartburg College

Simon Wilson — What is QE for the people?

Presents both side on the issue about as well as can be expected in this kind of venue.

In his campaign presentation on the economy a few weeks ago, Corbyn suggested giving the BoE “a new mandate to upgrade our economy to invest in new large-scale housing, energy, transport and digital projects: QE for people instead of banks”. The plan is based on proposals from Corbyn’s main economic adviser, tax campaigner Richard Murphy.…

Murphy suggests that this form of QE is only now being considered because “money has only recently been properly
understood for the first time”. He seems to believe that advances made in the subfield of economics known as “modern monetary theory” (MMT) make people’s QE feasible. (Crudely, adherents of MMT hold that governments with the power to issue their own currencies will always be solvent, and that inflation is caused primarily by resource constraints, rather than monetary growth.)

Here's the contra:

By contrast, most other economists, commentators and politicians – Labour and Conservative – view people’s QE as having obviously dangerous inflationary consequences.

Why is that?

It would fatally compromise the BoE’s standing on global credit markets. As Robert Peston put it in his BBC blog,m“the lore of central banks – which, rightly or wrongly is almost universally accepted by investors – says that central banks should only look at whether there is too much or too little money in the economy… and not at narrowerquestions, such as whether there are enough roads or houses being built in Britain”. 

If markets believe the BoE is no longer exercising judicious restraint in its creation of new money, and is instead the de-facto vehicle for funding politically popular projects, sterling would weaken and inflation rise.

By how much? That’s impossible to say. But even if we are not talking about Weimar Germany, there is little doubt that investors would conclude that the risk of investing in sterling and the UK had grown.

In other words, because "expectations." 

Money Week
What is QE for the people?
Simon Wilson