Double In-Demand-nity!

You know when someone asks you what you would get if you won some money?

And you think, “I’d buy a new car – or pay off some of the mortgage – or go on holiday – or give some to my friends and relatives – and I’ll give some to charity – and get a new outfit…”

At a certain point in the above thought, the word “or” becomes “and” – and you forget that you can only spend your money once.

Unlike his predecessors, Corbyn is, correctly in my opinion, looking to stimulate demand in the economy.

There are two ways he is looking at doing that. The government can spend more. Or people can be encouraged to spend more. The former is traditionally linked with government borrowing or increased taxation. The latter is linked with increasing the supply of money by lowering interest rates, or, with interest rates so low, printing money / quantitative easing / helicopter money.

But I think Corbyn may be planning to spend his money twice – or not actually spend twice, but stimulating growth twice. Once by increasing government spending, which he will have to do to meet his policy promises. And once via the people’s quantitative easing policy (PQE). Everything I have read so far about PQE equates it to “helicopter money” rather than a way to fund government spending. Helicopter money is the random or equal distribution of money from the Bank of England – unlike traditional QE which is used to buy assets from financial institutions.

There is a danger that the excitement of having a novel monetary economic policy (increased money supply) might conflict with the public spending promises (increased government spending) causing excessive demand.

Now I am aware that the economy has been bumping along the ground for years, and that my favourite economists hold inflation scare-mongering in contempt.

I just thought I’d flag it up.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s