Monthly Archives: October 2017

Green quantitative easing – good sense


Richard Murphy and Colin Hines published the Green QE report, which is summarised below.

In March 2009 the Bank of England began a programme of quantitative easing in the UK – in effect, the Bank of England granted the Treasury an overdraft but to keep the European Union happy had to do so by buying Government gilts issued by the Treasury from UK commercial banks, pension funds and other financial institutions.

There were three reasons for doing this:

  1. To keep interest rates low;
  2. To provide banks with the money they needed to lend to business and others to keep the economy going.
  3. To make sure there was enough money in the economy to prevent deflation happening

No one was sure whether quantitative easing would work, and as we note, no one is sure for certain whether it has worked.

We do however suggest in this report that several things did happen:

  • The banks profited enormously from the programme, which is why they bounced back into profit so soon after the crash– and bankers’ bonuses never went away;
  • The entire government deficit in 2009/10 of £155 billion was basically paid for by the quantitative easing programme. If you wanted to know how the government met its costs, now you do; There was a shortage of gilts available for investment purposes as a result of the Bank of England buying so many in the market. Large quantities of funds were invested instead in other financial assets including the stock market and commodities such as food stuffs and metals.
  • The USA also undertook quantitative easing at the same time as the UK, which meant that despite near recessionary conditions commodity prices for coffee and basic metals such as copper have risen enormously. This has impacted on inflation, which has stayed above the Bank of England target rate;
  • Deflation has been avoided, although the relative role of quantitative easing in this versus the previous government’s reflation policies is unclear;
  • Interest rates have remained low.

However, one thing has not happened, and that is that the funds made available have not resulted in new bank lending. In fact bank lending has declined almost steadily since the quantitative easing programme began.

there is an urgent need for action to stimulate the economy by investing in the new jobs, infrastructure, products and services we need in this country and there is no sign that this will happen without government intervention.

For that reason we propose a new round of quantitative easing –or Green QE2 as we call it.

Green QE2 would do three things. First it would deliver the Green New Deal – the innovative programme for investment in the new economy the UK needs as outlined by the Green New Deal group in its reports for the New Economics Foundation. This would require three actions:

  1. The government would need to invest directly in new infrastructure for the UK.
  2. The government needs to invest in the UK economy, in conjunction with the private sector, working through a new National Investment Bank;
  3. The government must liberate local authorities to partner with the private sector to green their local economies for the benefit of their own communities, and it can do this by providing a capital fund for them to use in the form of equity that bears the residual risks in such projects.

A second round of quantitative easing should involve direct expenditure on new infrastructure projects in the UK.

For example there is a desperate need for new energy efficient social housing in this country, for adequate investment in railways, not to mention a reinstatement of the schools rebuilding programme. Undertaking these activities would give the economy and immediate shot in the arm as well as providing infrastructure of lasting use which would more than repay any debt incurred in the course of its creation.

This is the result of the ‘Keynesian multiplier’ effect. This is the phenomenon that occurs when government borrowing to fund investment takes place during a time of unemployment.

That borrowing directly funds employment.

That new employment does four things.

First it reduces the obligation to pay benefits.

Second, it means that the person in that new employment pays tax.

Third, it means their employer pays tax on profits they make.

And finally the person in employment can then save, which means that they help fund the government borrowing which has created their own employment.

As Martin Wolf, the eminent Financial Times columnist has said in this FT video: “Borrowing is no sin, provided we use the funds to ensure that we bequeath a better infrastructure to the future”.

This is what we believe the programme we recommend would do and this is precisely why it is appropriate to do it now when the cost of government borrowing is so low, a point Wolf and Skidelsky also make.

Borrowing now to spend into the economy is the basis for the first stage of Green QE2 – and of the Green New Deal.

Read the whole report here:






Is there ‘simmering anger’ at the disruption unleashed by digital innovation?

 In September, Sathnam Sanghera wrote about a widely reported funeral in Wolverhampton for a 52-year-old man who died suddenly in August. According to the local paper hundreds of people gathered at his former workplace to pay their respects, A “sea” of more than 2,000 people were photographed gathering for his funeral. Then, after the eulogy had been given, the crowd erupted into spontaneous applause.

Who was he? A former footballer for Wolverhampton Wanderers? A local politician? No, he was Raj Kumar, who “just” ran the Ashmore Park Hardware shop for more than 30 years.

He died after collapsing in his shop and according to the tributes left for him the reason he elicited such affection was that he was, very simply, good at what he did. A shopkeeper who advocated for his fellow traders; who helped you out when needed; who always had a nice word even if you were just passing.

The positive reaction to Raj’s passing in Mr Sanghera’s home town contrasted with the adverse reaction there has been in the US to the launch of a company called Bodega.

Named after convenience stores specialising in Hispanic groceries, Bodega is installing unmanned machines in San Francisco’s apartments, offices and dormitories to serve non-perishable food and other items normally found in convenience stores.

Elizabeth Seagran explains: Bodega sets up five-foot-wide pantry boxes filled with non-perishable items you might pick up at a convenience store. An app will allow you to unlock the box and cameras powered with computer vision will register what you’ve picked up, automatically charging your credit card. The entire process happens without a person actually manning the “store.”

Thousands of outraged social media users and tens of US columnists have attacked the idea and Bodega’s CEO apologised online for causing offence, claiming that it was not his intention to put bodegas out of business and that they “didn’t fully understand what the reaction to the name would be”. Sanghera adds that the whole sorry episode was a sobering demonstration of what the funeral in Wolverhampton also showed that:

“People really value their local shopkeepers. It is not just that they sell you Monster Munch and paint, they sometimes proffer credit, provide lonely people with conversation, give shelter to kids from bullies, report suspicious events to the authorities, and can even help with race relations. For many people their local shopkeeper is their only interaction with someone of another race and religion: it is notable that in a radio interview in 2001 Lord Tebbit praised his Asian newsagent even as he attacked multiculturalism”.

The ‘more profound’ operations by Google are making it easier for ‘all sorts of awful people’ to access dangerous material:

  • social networking companies such as Facebook are creating, paradoxically, an epidemic in loneliness and fuelling a rise in fake news that, in turn, is leading to extreme politics . . .
  • Amazon is putting thousands of independent retailers out of business and paying very little tax in the process;
  • dating apps are encouraging even very average blokes to act as though they are Indian maharajahs in the 19th century and also destroying nightclubs
  • and “news” services are killing off local newspapers that bring us news of people like Raj and expose corruption on councils.

Sanghera believes that the intense backlash to Bodega shows the depth of the simmering anger ‘out there’ about Silicon Valley and its obsession with innovation and ends:

“It seems to me that Bodega’s real mistake has been to be explicit (initially) about its intention to disrupt “mom and pop stores”. All this other disruption we have accepted, gradually and thoughtlessly, as a necessary price to pay for services supposedly provided “free” by Silicon Valley.

“Has it all been worth it? By the time the penny drops, and we decide to be furious, I suspect it will be too late anyway”.

Sathnam Sanghera is a journalist and author. Follow him on Twitter @Sathnam