We could fix our economy by giving every man, woman and child £6,000 in cash

It's hard to believe in the economy's so-called recovery when 2.5m remain unemployed and 1.5m are stuck in part-time jobs because they can't find full-time work. So how do we get growth beyond the Square Mile?

Have you heard the good news? The economy is “turning a corner”. Growth is back. Green shoots abound. Hurrah! Forget that this is the slowest recovery in a century; forget that George Osborne promised us 7.7 per cent growth three years ago and yet we’ve had less than 3 per cent. Ignore the 2.5 million people who are still unemployed and the 1.5 million people who are stuck in part-time jobs because they can’t find full-time work. Turn a blind eye to the longest squeeze on workers’ incomes since the 1870s, to the 500,000 people who have been forced to visit food banks in the past year.

OK, you get my drift. To talk of a “recovery” is self-serving spin from the discredited austerians. If you want to see “green shoots”, you’ll have to head for the City of London. Bonuses there are up 64 per cent, while RBS and Lloyds are enjoying combined half-year profits of £3.5bn.

So how do we get growth beyond the Square Mile? Forget fiscal stimuli. Yes, Labour’s proposed VAT cut would boost demand – but by less than 1 per cent of GDP. Forget monetary stimuli. Interest rates have stood at a record low of 0.5 per cent since March 2009.

Then there is quantitative easing (QE), in which the Bank of England, according to the official explanation on its website, “electronically creates new money and uses it to purchase gilts from private investors such as pension funds and insurance companies . . . [This] lowers longer-term borrowing costs and encourages the issuance of new equities and bonds to stimulate spending.”

We have had a massive £375bn of QE so far, which may have saved the financial sector but has done very little for the rest of us. According to the Bank of England, 40 per cent of the gains from QE since 2009 have gone to the richest 5 per cent of households. “QE is a policy designed by the rich for the rich,” says Nigel Wilson, the chief executive of Legal & General.

There is, however, a way of using QE money in a bolder, much more daring way. It’s called “quantitative easing for the people”, or QEP.

QE of £375bn amounts to around £6,000 per man, woman and child in the UK. So why not electronically add this to the current accounts of every member of the public? Why not give the QE money directly to ordinary people to spend, save or pay off their debts? Wouldn’t it be better to inject new money into the real economy, rather than the City of London (where it usually sits unused, unspent, unlent, in bank vaults)?

QEP, incidentally, isn’t my idea. It’s Steve Keen’s. A professor of economics at the University of Western Sydney, Keen was one of only a handful of economists to have warned of the dangers of a financial crisis, several years before Lehman Brothers imploded in 2008.

QEP might elicit snorts of derision from the inflation hawks and deficit scolds, not to mention lazy references to hyperinflation and Weimar Germany, but it isn’t quack economics. Far from it. Remember the freemarket economist Milton Friedman, a hero to Thatcher and Pinochet, who said that downturns could be fought by “dropping money out of a helicopter”?

And remember his liberal-left rival John Maynard Keynes, who called for the Treasury to “fill old bottles with banknotes” and then bury them for people to find, dig up and spend?

QEP bypasses the tired and stale debate over austerity. Having the Bank of England hand over cash directly to consumers would boost aggregate demand without adding a penny to the national debt.

What’s not to like? Well, there’s no such thing as a free lunch, right? Wrong. There is if you’re a banker or a bond trader. The question is: why use QE money to bail out the masters of the universe rather than members of the public?

It’s a taboo topic, I guess. QEP is, in the words of the veteran economics commentator Anatole Kaletsky, formerly of the Times and now of Reuters, “too controversial for any policymaker to mention publicly”. Only a handful of pundits, such as Kaletsky and the Guardian’s Simon Jenkins, have so far dared to discuss the option of QEP. Kaletsky refers to “citizens’ dividends”, Jenkins to “people’s bonuses”.

It’s still a tough sell. Ever since Liam Byrne, the outgoing Labour chief secretary to the Treasury, left behind his now notorious note in May 2010 – “I’m afraid there is no money,” he joked – the austerians have pretended that the UK is broke, bust, bankrupt. In a speech in March, David Cameron declaimed that there’s “no magic money tree” to fund what he dismissively described as “ever more wishful borrowing and spending”.

This is the big lie of the debate over growth and deficits. Don’t take my word for it. Or Keen’s. A briefing document published by George Osborne’s Treasury to coincide with the Budget in March noted how: “It is theoretically possible for monetary authorities to finance fiscal deficits through the creation of money. In theory, this could allow governments to increase spending or reduce taxation without raising corresponding financing from the private sector.”

The Treasury agrees: there is a money tree – and it isn’t magical. It’s called QE and it can, if we so choose, be deployed to support households, not banks; to encourage spending, not hoarding. QEP isn’t just doable: in an age of collapsing living standards, it’s vital.

It would also be revolutionary. To borrow a line often attributed to Henry Ford: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

Mehdi Hasan is a contributing writer for the New Statesman and the political director of the Huffington Post UK, where this article is cross-posted

Economic growth can't only be focused on London's financial district. Image: Getty

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 23 October 2013 issue of the New Statesman, Russell Brand Guest Edit

Photo: Getty
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Labour's unstoppable force meets its immovable object

Team Corbyn are confident. But so are their opponents.

If you come at the king, you best not miss. And boy, have they come at him: over 40 resignations from the opposition frontbench and a motion of no confidence in Jeremy Corbyn’s leadership that both loyalists and rebels expect to pass easily.

What happens next? The ruling executive of Momentum, the organising force behind Jeremy Corbyn’s supporters in the party grassroots, met Corbyn in his office late last night. It would be overstating it to say that the mood was jubilant but Corbyn and his allies are confident of victory in the struggle for supremacy. “Game on,” texted one senior figure. “He won’t stand down,” another told me, “He feels he owes it to the membership to let them decide.”

Within Team Corbyn, they remain convinced that the shadow cabinet “are going to war without an army”, in the words of one insider. Others are already looking forward to the policy conference of Labour and Britain’s largest trade union, Unite, where there is a chance the union may adopt a policy of supporting mandatory reselection of Labour MPs.

Are they right? Having called and spoken to party members, it is certainly clear that Corbyn’s standing among the membership is not quite as high as it once was.

But members are unclear what they want next – several mentioned Keir Starmer, although my instinct that is largely because, as one member conceded, he is still very much a “blank slate” on which the hopes of the party’s electorate can be projected. What most want is someone who would retain much of the politics but with greater competence – the Vice News documentary seems to have done more damage than the referendum on the whole – and without the thirty years in politics for the right-wing press to pick over. The difficulty is that it is hard to see a politician in the parliamentary Labour party answering to that description or even close to it. While for the rebels, finding a winner is no longer the priority, surviving a snap election in October is, loyalists in the PLP and the grassroots are either unconvinced that the result will be heavy defeat, or unconvinced that any of the replacements would do better.

The difficulty for Corbyn’s critics is, rather like Labour under Ed Miliband, although they might be the repository for people’s irritation and uncertainty, there are few making a positive choice to vote for any of the available candidates. My instinct is, if Corbyn is on the ballot, the polls might show a tighter picture, he might have a tougher time on the campaign trail that he did last time, and he might have a closer fight as far as constituency nominations were concerned, but he would ultimately win, and win easily.

That’s before you get into Momentum’s ability to expand the electorate further.  Although appearing at last night’s rally was criticised by some journalists and cost Corbyn’s team at least one frontbencher, who, while keen to avoid prolonging the fighting, didn’t want to endorse the attacks on his colleagues in the parliamentary party, ultimately the petitions in support of Corbyn and the impromptu rally have given them more data to go out and recruit people to vote in the next leadership election, more than making up for any loss of support within the party-as-it-is.

But – and it’s a big “but” – I’m not convinced that Corbyn will make it to the ballot.

The party’s legal advice, from the party’s lawyers, GRM Law, is that Corbyn will have to secure 50 nominations to make the ballot, just as any challenger will. My feeling, with MPs of all parties convinced that there will be an election in October as soon as the new Conservative leader is in place, is that pressure from activists to nominate Corbyn will be less fruitful than it was in 2015. (That said, Labour MPs are skittish.) 

The Labour leadership themselves have obtained legal advice showing the reverse from Doughty Chambers. But whichever way the NEC rules, neither side will be able to take it to the courts. Most legal professionals estimate that Labour, like a trade union or a private members’ club, is exempt. “You accept the rules of the club when you join the club,” and that’s the end of it. My impression is that the judiciary would be reluctant to get involved.

The difficulty with predicting what happens next is it brings two of Labour’s iron laws into direct conflict: Labour never gets rid of its leader, and Tom Watson always wins. And I don’t think anyone is sure which of those laws is going to end up broken.

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.