STOCK MARKET WATCH -- Wednesday, 16 September 2015

[Demeter]

7. Corbynomics 101: A Guide to People’s QE (PQE)—It’s the Deficit, Stupid!

http://neweconomicperspectives.org/2015/09/corbynomics-101-its-the-deficit-stupid.html

By Scott Fullwiler, Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College.

As anyone who’s followed the discussion has seen, the proposal from the newly-elected leader of the British Labor Party, Jeremy Corbyn, to implement “People’s Quantitative Easing” or PQE, has created a lot of controversy (Richard Murphy’s blog is a good place to see the PQE defense against these arguments). The basics of the proposal are that the government would create a public bank for financing infrastructure (National Investment Bank, or NIB), which the Bank of England (BoE) would then lend to directly in order to fund. The NIB would then carry out infrastructure projects to jumpstart the economy, create public capital, and create jobs.

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. For PQE, consider a NIB that is essentially an arm of the government carrying out its spending, so we can include it as part of the government simply spending from the government’s account at the central bank, while its purchases of infrastructure show up as government assets....