Jeremy Corbyn continues to get plenty of attention, and hard left media commentators (hello Owen) are now pointing to the fact that some economists (including one who predicted that the government's austerity plan would result in unemployment of 5 million) have broadly welcomed Corbynomics. Let's examine one of his suggestions, which is "QE for the people". QE for "the people" sits in opposition to QE "for the bankers", and bankers are evil profit-makers whereas people are nice. [Bankers presumably are not people; maybe they are lizards. Who can be sure?]
David Smith takes the "for the bankers" bit apart in his Sunday column (also available to Times subscribers). He points out that original QE was not designed to bail out the banks, but to lower long-term interest rates to encourage investment in things other than government bonds. Also noted is that QE money is not "free" because it is borrowed from the central bank's reserves. It is cheap, for sure, but not "free". It is also not risk-free, and ultimately the taxpayer stands behind the Bank.
People's QE is the same cheap money but this time ploughed into bonds issued by a state investment bank, whose goal is to direct investment into things which the private sector and existing government spending are allegedly incapable of producing themselves: public transport, social housing, green energy. On the face of it it seems seductive: if you asked people whether the country would benefit from improved public transport/social housing/green energy you would probably get a resounding "yes!".
Of course, people also say yes to motherhood and apple pie, yet neither comes for free.
Proponents of PQE say that the idea stems from "Modern Monetary Theory". MMT says that a sovereign government need never default in its own currency. This is obviously true: a government which can print its own money will never run out. MMT then says that because of this fact, the nominal size of the government's deficit is irrelevant: all that is needed are balancing taxes to ensure that inflation does not run away, and to ensure that investment and spending are directed to the "right" things.
What the government does if it wants to keep inflation in check is to raise taxes or cut government spending, for a given monetary policy. If the government wants loose money, it runs a tighter fiscal policy (hello George); if the government wants to splurge on spending, it must keep the money supply in closer check (hello Gordon). Does this sound familiar? It should, because effectively it is what the UK government and others have been doing since sloppy Keynesianism went out of fashion and Friedmanism came in, in the late 70s/early 80s. Since the Bank of England was made independent in 1997, the UK government can choose to tighten money by running a looser fiscal policy or the other way around, and the Bank will react accordingly to meet its inflation target.
If we run a quick thought experiment around PQE what might happen? The Bank is instructed to print a few tens of billion quid to put into this magic investment bank, and as the money starts to be "invested" in new railways or broadband links or housing, the economy starts to pick up. Inflation prospects start to pick up at the same time, so the government now has the choice of whether to keep inflation in check by tightening fiscal policy or to let it rip. I can't say I've seen the Corbyn manifesto's section on inflation, but if inflation is going to stay on target then he's going to have to raise taxes or cut government spending. He's hardly likely to cut spending on one state project as a result of new spending by the "investment bank", so it looks like taxes are going up.
When we look at what the PQE crowd are actually suggesting, it looks as though it is a quite straightforward expansion of the state within the economy. PQE is just trying to pull the wool over voters' eyes, because even the hard left know that the electorate won't vote for significantly higher taxes. As Ed Balls of all people once said: people think they pay quite enough taxes already.
The coalition and Conservative governments took and continue to take a view that the state needs to shrink as a proportion of the economy, so fiscal policy is tightening so that money can stay looser, longer, so the private sector can expand. Corbyn is proposing the exact opposite.
There is space for legitimate debate over what the state can do better than the private sector, over what the right level of taxes and spending are overall, over the level of inflation, and so on. The fact that the Corbyn camp are basically trying to hide their desire for a much bigger state behind a complex-sounding magic money policy may tell us how confident they are that the electorate will vote for their Courageous State.