The Case for People’s Quantitative Easing

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Financial blogger Frances Coppola has written a clear, informative little book arguing the case for what she calls “quantitative easing for the people” which she believes can end the stagnation in the world economy since the financial crash of 2008.

Quantitative easing (QE) is a process by which central banks create money digitally (“print money”) and use it to buy bonds in government, banks and corporations. QE played a crucial role in propping up the financial system in the US and elsewhere following the collapse of Lehman Brothers.

As Coppola argues though, QE has failed to restore real growth since. This is because QE funding has been channelled into zombie banks and big corporations that have not invested the funds productively but have used them to pay off their debts, boost their share price and engage in speculation. Austerity policies pursued by governments to restore deficits run up by bailing out the banks have acted as a break on growth. QE “did not go where needed”, she says.

Coppola believes that instead of QE for the banks there should be QE for the people (QEP). If money was given to ordinary people, for example by crediting their bank accounts, they would spend it on the goods and services they need to live, or at least pay off their debts, which would in turn increase their disposable income. This would provide the boost to the economy necessary to end economic stagnation.

Coppola dismisses the fears of bankers and mainstream economists that this would lead to hyperinflation or a return to the stagflation of the 1970s. She agrees with monetarist guru Milton Freidman that increasing the money supply would have prevented the Great Depression of the 1930s. She argues that given that the problem in the world economy is low inflation, QEP or “helicopter drops”, as Friedman called it, would not stoke inflation.

Coppola is critical of the so-called independence of central banks from government. She rightly argues that this really means independence from democratic control. The justification for this is that governments may dictate inflationary monetary policies. She believes that central banks and governments should instead work together to encourage economic growth.

Socialists should of course support any measures that increase workers’ living standards. However there are major problems with Coppola’s proposals, both theoretical and practical.

She appears to be an adherent of the Modern Monetary Theory school that believes that money can be created out of thin air and is not an expression of real value. Marx dismissed what he called, “the fanciful notions that the contradictions which arise from the nature of commodities, and therefore come to the surface in their circulation, can be removed by increasing the amount of the medium of circulation.” She follows the radical Keynesian view that economic crisis is caused by under consumption (lack of demand by workers). The word “profit” does not appear once. There is no recognition that the underlying cause of the current long depression is the failure to restore the rate of profit not a lack of liquidity.

Coppola seems to think that the state of the world economy is due to incorrect ideas and policy mistakes by those in charge. She does not appear to recognise that there is a fundamental conflict between the capitalists and the workers that produce the profit on which they depend. She demonstrates little awareness that implementation of even the modest reforms she proposes will require not only the election of socialists such as Jeremy Corbyn who are serious about implementing them but massive struggles to stop the ruling classes of the world blocking measures that threaten their interests.