Simon Wren-Lewis proposed that the state create money but if inflation builds then taxation should be used to reduced the amount of money in circulation. I think this is faulty because it is using a tool at the circulation stage rather than the creation stage, which seems difficult to control and will have a very long lag. The existing tool of interest rates is proven effective at influencing whether people borrow or save, which is the moment that money is created.
If government decided to print £4bn of money to build roads, then the Bank of England would calculate how much this would add to inflation and would adjust interest rates accordingly. In effect, this is an indirect form of taxation: those with large debts would pay a little more in interest rates, while government gets £4bn that it doesn’t have to pay back.
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I don't think Dan McCurry must have a very large house mortgage in the UK or his income is very ample. Using interest rates as a "tax" for regulating inflation will be regressive for many buying a home especially when young and trying to raise a family.
For nearly five decades now neither the Labour or Conservative parties have kept a tight leash on the house mortgage lending of the private banks and house prices are astronomical in comparison to many other countries.
The so-called progressive Labour Party still want to maintain the Neoliberal policy of an independent central bank this is despite the house mortgage lending hyper-inflation bubble that's gone on so long. Also despite the 2008 Financial Crash and ensuing Great Recession where the Bank of England failed to do their over-all monitoring job!
https://web.archive.org/web/20101203101708/http://www.bankofengland.co.uk/financialstability/mou.pdf
When interest rates were higher, wage rises in line with inflation were higher, which meant that mortgages became less of a burden after a few years, and for many people it was better that way, because nowadays the debt burden just remains the same throughout the term of the mortgage.
High interest rates probably kept house prices lower as well. But if you had a mortgage and interest rates went up, that could destroy you. I remember getting a fixed interest rate at 5% for 10 years for that, because I would have lost my home if they went up as I was maxed out, and then the interest rate went right down to 2% and I was stuck. Lucky for me, after a few years I paid off my mortgage, and with my particular mortgage there was no penalty for doing so. I was just dead lucky there.
Somehow, my post got lost. See
https://axecorg.blogspot.com/2019/06/mmt-trojan-horse-for-labour-courtesy-of.html
Load of nonsense from Dan McCurry. First he says “I think this is faulty because it is using a tool at the circulation stage rather than the creation stage, which seems difficult to control and will have a very long lag.” Really? Where’s the evidence for this “long lag”? McCurry doesn’t give any.
Next, he says “The existing tool of interest rates is proven effective at influencing whether people borrow or save…”. Well I can cite plenty of studies which claim interest rate adjustments are actually NOT ALL THAT effective.
Re the second above quoted para, the para is part of a passage discussing how best to raise demand. McCurry suggests printing money and spending that on roads, with the Bank of England then raising interest rates to deal with any EXCESS demand (i.e. deal with any inflationary consequences). Now what on Earth is the point of doing something designed to increase X, and then doing something else designed to REDUCE X?
Looks to me like McCurry doesn’t know whether he’s coming or going.
Unknown,
I think the steep rise in real house prices in the UK since WWII has come in the last 20 years, i.e. since the fall in interest rates World-wide. In contrast, the rise due to the Bank of England's abandonnment of credit guidance a couple of decades earlier was much smaller.
He would have a lot of already maxed out house owners with big mortgages very angry indeed. Evertime Labour spends, they get clobbered. Also, who suffers the most, peoole on moderate incomes maxed out on loans, or the wealthy?
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