Thursday, 9 February 2012

Thank Goodness For Economists – Where Would We Be Without Them?

The Bank of England, I am told, is to pump £50bn into the economy in ‘quantitative easing’.

Part of the problem with all this tax and economic stuff is that it’s all grown too complex for ordinary people such as you and me but – as far as I can understand – the basic idea is that the Bank of England gives the banks £50bn. This eases their situation, which in turn frees them up to lend the money to businesses.
In their turn, the theory goes, those businesses will invest and employ more people, who will spend more, and the economy gets going.
You will note that ‘the economy gets going’ is at the end of a very long tube of causes and effects.

Indeed, it appears that it is more cone than tube, because it gets narrower and narrower the nearer it gets to our end.
Most of that money, I am told, the banks decide to keep. They call it ‘deleveraging’ – reducing their commitments against a rainy day. ‘Quantitative easing’ also keeps interest rates low, so they’re quids in!

All the news from industry, also, suggests that little of any money that trickles its way through to businesses is used in investment or employment. They, too, are busy building their balances against a possible rainy day.

And, of course, the fraction that eventually makes its way into our pockets will also be used – if you’ve any sense – for saving … to pay off your debts.
Which is why we’re not seeing much of any ‘the-economy-gets-going’ at the moment.

Beyond ordinary comprehension
As a layman, I can’t for the life of me see why, if they want to stimulate spending, common sense wouldn’t suggest that they’d do better to give it to poor people, who have to spend it. Or at least spend it on infrastructure, which will increase jobs and actually pump money into the economy
– those jobs would also reduce expenditure on unemployment benefits, and increase revenue in income tax yield.

You can see how little I understand! Instead, the government are reducing benefits and capital spending as part of their austerity cuts.
No, today we’re pouring £50bn, to all practical purposes, into … saving!

Moreover, this ‘quantitative easing’ will then count against our overall debt – the same debt that is fuelling the government’s ‘austerity’ decisions to take more money out of our pockets.
Stupidly, I would have thought that that would have depressed the economy, but what do I know?

Counter-intuitive, or what?
I am reminded how, on Wednesday, at Prime Minister’s Questions, David Cameron explained that the way to increase employment in the private sector is to give small firms more powers to sack people.
Just like the best way to reduce youth unemployment, apparently, is to make older people work much longer before they retire.
Counter-intuitive or what?

Thank goodness they don’t give people like you and me – armed only with mere common sense – any say in these things.

1 comment:

  1. Postscript - QE damages pensions: http://www.guardian.co.uk/business/2012/feb/09/bank-of-england-announces-more-quantitative-easing

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