When the right-wing press are not engaging in personal abuse and out of context smearing to discredit Labour’s new leader, they occasionally give their opinion on his policy. The most discussed by far is what has been, slightly unfairly, dubbed Corbynomics. The premise is simple: in recessionary times allow the Bank of England to print money to fund infrastructure projects essentially transferring money from the financial economy to the real economy. It may seem like a silly idea, but the Bank of England has engaged, since the financial crash, in a kind of Corbynomics by proxy: printing money to sure up bank balance sheets, making them more likely to lend and slowly, whilst transferring through several financial institutions, stimulate economic growth and liquidity. That’s called Quantitative Easing.
The biggest objection to Corbyn’s policy from the right-wing (other than laughable comparisons to Zimbabwe) is that by directly politicising monetary policy and creating money out of thin air to build infrastructure, inflation will rise. Mark Carney, the governor of the Bank of England, alongside former Shadow Chancellor Chris Leslie and former leadership candidate Yvette Cooper, have made a logical argument that inflation rises always hit the poorest hardest.
there is some suggestion that the UK may be about to go through a period of deflation
There is just one snag in that argument though: inflation is supposed to happen. The Bank of England has an inflation target of 2%, which we are currently far below — potentially jeopardising our already weak exports, widening our balance of payments deficit and pushing the pound to a level where it is too strong. Worse, there is some suggestion that the UK may be about to go through a period of deflation — putting the above problems on overdrive.
The Bank of England is so concerned that they are considering hiking their inflation target to 4%, double the current target. Usually the monetary policy instrument used to achieve this is slashing interest rates — encouraging people to spend rather than save, encouraging lending from banks and encouraging business to borrow. The problem is, the ability of the Bank of England to do that is severely limited, as our interest rates are near zero. This is the reason for the introduction of quantitative easing in the first place — to try to get banks to lend.
All if this money printing has done nothing to increase bank lending our increase economic growth. The Bank of England is, understandably, reluctant to implement again. So, in the week they rubbished Corbyn’s ‘radical’ solution they announced that they were considering introducing negative interest rates: forcing savers to pay to put their money in the bank instead of receiving interest and allowing people in debt, particularly homeowners to accrue interest which is paid to them by the bank on their debt. Why do they want to enter this bizarro world? Because they need a radical solution to our current liquidity and stagnation problem.
they know that the austerity rhetoric of the last five years has set out to publicly shame and denounce the idea of debt.
So this is the Bank of England’s plan —force people to spend their money to avoid being charged by the bank for trying to save it and encouraging the accruement of massive amounts of debt by businesses and individuals because they would be paid to borrow. Why are they doing this? Because they know that the austerity rhetoric of the last five years has set out to publicly shame and denounce the idea of debt. We are in a strange place in this country, where to be in debt is to be morally repugnant, but the levels of private debt have reached record heights; where the levels of private debt have reached record heights, but people are not borrowing enough to stimulate economic activity.
Conventional economic policy is no longer working and now the left and right have set out their stalls. Pay the banks to save your money or bypass the banks to build infrastructure. Funny how the latter now looks like the more sensible option.