Quantitative easing is not the Titanic

A second round of quantitative easing could boost the US economy, help ordinary working Americans, a

While last week's US midterm elections continue to be dissected on both sides of the Atlantic, less attention was paid to the Federal Reserve's decision to embark on a second round of quantitative easing, even though this may have a greater impact on the US economy. Those who have focused on the Fed's decisions have been generally critical, the former Reagan administration official David Stockman calling it "pure monetary heroin" and other pundits predicting that it will spark a global trade war. That noted monetary policy expert, Sarah Palin, has even taken a break from her reality TV show to conjure up fears of hyperinflation, a worthless dollar and a situation where the Federal Reserve becomes "not just the buyer of last resort, but the buyer of only resort".

On one level, people are right to be sceptical. The Bush administration argued in 2008 that only drastic action could prevent depositors from losing their money and firms' temporary lines of credit drying up, claims that the Federal Reserve Bank of Minneapolis debunked in a study days after the bailout was finally agreed. Similarly, the purchase of $1.25trn worth of mortgage securities in early 2009 failed to prevent the rate of growth of broad money (M3) falling into negative territory this summer.

With US unemployment at 9.6 per cent, the only thing that the interventions seem to have achieved is to enable parts of the financial sector to escape the consequences of their own actions. As an "added bonus", the public backlash has helped elect a Congress committed to extending tax cuts for the rich and rolling back Obama's health-care reforms.

However, by purchasing long-term government bonds, which are more likely to be held by households and non-financial corporations than mortgage securities, a greater proportion of the monetary stimulus will find its way directly into the money supply, rather than relying on increased lending. This in turn should boost economic demand and prevent deflation, which is a very real possibility and would delay the process of economic recovery. That the intervention will involve the purchase of a low-risk asset, instead of securities of uncertain value, will reduce the risk of losses to the US Treasury without further rewarding those who lent and invested recklessly.

Even the warnings from the World Bank that the intervention will lead to a weaker dollar are disingenuous. Since the mid-1970s America has run a continuous trade deficit, importing more goods and services than it exports. This deficit, and the consequent borrowing that was used to cover for it, have now been recognised as one of the main causes of the financial crisis, making a solution imperative for America's long-term future.

Because the only other alternatives are deflation, which would further increase unemployment, and protectionism, which could spark a trade war that could tip the world back into recession, letting the dollar slide is the only plausible solution. Worryingly, protectionist sentiment continues to grow, with a poll conducted in September showing that 69 per cent of Americans believe that free-trade agreements destroy more jobs than they create.

Of course, some risks still remain. While an increase in the money supply is needed to speed recovery and prevent deflation, too great an injection will be inflationary. It is also important to make sure that the Federal Reserve sticks to purchasing government bonds from households and consumers, rather than reintervening in the mortgage market or buying securities from banks or financial institutions (which would only increase the monetary base).

The Federal Reserve needs to increase transparency by publishing the basic broad monetary aggregates that other central banks compile, including those that it discontinued in 2006, rather than forcing economists to rely on composites produced privately. There is also the question of why it has taken Bernanke so long to arrive at a solution that would have avoided much of the cost, moral hazard and public anger generated by the bailouts.

Matthew Partridge is a freelance journalist and a PhD student at the London School of Economics.

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The deafening killer - why noise will be the next great pollution scandal

A growing body of evidence shows that noise can have serious health impacts too. 

Our cities are being poisoned by a toxin that surrounds us day and night. It eats away at our brains, hurts our hearts, clutches at our sleep, and gnaws at the quality of our daily lives.

Hardly a silent killer, it gets short shrift compared to the well-publicised terrors of air pollution and sugars food. It is the dull, thumping, stultifying drum-beat of perpetual noise.

The score that accompanies city life is brutal and constant. It disrupts the everyday: The coffee break ruined by the screech of a line of double decker buses braking at the lights. The lawyer’s conference call broken by drilling as she makes her way to the office. The writer’s struggle to find a quiet corner to pen his latest article.

For city-dwellers, it’s all-consuming and impossible to avoid. Construction, traffic, the whirring of machinery, the neighbour’s stereo. Even at home, the beeps and buzzes made by washing machines, fridges, and phones all serve to distract and unsettle.

But the never-ending noisiness of city life is far more than a problem of aesthetics. A growing body of evidence shows that noise can have serious health impacts too. Recent studies have linked noise pollution to hearing loss, sleep deprivation, hypertension, heart disease, brain development, and even increased risk of dementia.

One research team compared families living on different stories of the same building in Manhattan to isolate the impact of noise on health and education. They found children in lower, noisier floors were worse at reading than their higher-up peers, an effect that was most pronounced for children who had lived in the building for longest.

Those studies have been replicated for the impact of aircraft noise with similar results. Not only does noise cause higher blood pressure and worsens quality of sleep, it also stymies pupils trying to concentrate in class.

As with many forms of pollution, the poorest are typically the hardest hit. The worst-off in any city often live by busy roads in poorly-insulated houses or flats, cheek by jowl with packed-in neighbours.

The US Department of Transport recently mapped road and aircraft noise across the United States. Predictably, the loudest areas overlapped with some of the country’s most deprived. Those included the south side of Atlanta and the lowest-income areas of LA and Seattle.

Yet as noise pollution grows in line with road and air traffic and rising urban density, public policy has turned a blind eye.

Council noise response services, formally a 24-hour defence against neighbourly disputes, have fallen victim to local government cuts. Decisions on airport expansion and road development pay scant regard to their audible impact. Political platforms remain silent on the loudest poison.

This is odd at a time when we have never had more tools at our disposal to deal with the issue. Electric Vehicles are practically noise-less, yet noise rarely features in the arguments for their adoption. Just replacing today’s bus fleet would transform city centres; doing the same for taxis and trucks would amount to a revolution.

Vehicles are just the start. Millions were spent on a programme of “Warm Homes”; what about “Quiet Homes”? How did we value the noise impact in the decision to build a third runway at Heathrow, and how do we compensate people now that it’s going ahead?

Construction is a major driver of decibels. Should builders compensate “noise victims” for over-drilling? Or could regulation push equipment manufacturers to find new ways to dampen the sound of their kit?

Of course, none of this addresses the noise pollution we impose on ourselves. The bars and clubs we choose to visit or the music we stick in our ears. Whether pumping dance tracks in spin classes or indie rock in trendy coffee shops, people’s desire to compensate for bad noise out there by playing louder noise in here is hard to control for.

The Clean Air Act of 1956 heralded a new era of city life, one where smog and grime gave way to clear skies and clearer lungs. That fight still goes on today.

But some day, we will turn our attention to our clogged-up airwaves. The decibels will fall. #Twitter will give way to twitter. And every now and again, as we step from our homes into city life, we may just hear the sweetest sound of all. Silence.

Adam Swersky is a councillor in Harrow and is cabinet member for finance. He writes in a personal capacity.