Government policy is based upon a belief that now the crisis is over the animal spirits of the private sector will awaken and interest rates gradually normalise.
But this is policy-making based on hope.
A genuinely responsible government needs a contingency plan in case hope fails us.
And if the Bank is to be the leader as well as the lender of last resort we should at least give them the tools to do the job.
With fiscal policy off the table and existing monetary tools exhausted we propose that the government legislates to empower the Bank of England with the ability to make payments directly to the household sector – QE for the people.
With this tool the Bank would be equipped to mitigate any sharp slowdown in the economy caused by domestic or external factors such as a deflationary shock from a Chinese or US recession or a continued slump in the eurozone.
The empirical evidence from analogous policies – such as tax rebates in the US – suggests that transfers to the household sector would have a far greater impact on demand at a fraction of the size of QE.
Consumers appear to quickly spend between a third and a half of any cash windfalls.
So to increase consumption by 1% of GDP you would need a transfer of 3% of GDP.
UK QE currently stands at about 20% of annual GDP.
The Bank of England estimates this raised GDP by 3%.
Further QE would likely have less effect.
So cash transfers to consumers are a far more effective stimulus than that provided by more QE for a lower spend.
(ed:..and of course any examination of a u.b.i. must also include an evaluation of the option of following the scandanavian-model..of having a simplified benefits-system set at a liveable-rate..and the universiality being that guarantee of a minimum/liveable-income for all citizens who need it..
..and of course an ending of that pillar of the poverty-trap..those abatement/clawback rates of 85% currently levied on benificiaries who get any part-time work/extra income..that is both madness/motivation-killing and cruel..and they must go..
..the endgame here clearly is giving poverty a serious nudge..and it will cost money..so the trick will be to find the most economically-efficient way of doing that..
..and the economic-benefits for business/the economy etc. of/from increasing the incomes of the poorest is that like the cited q.e. for citizens being such an efficient economic stimulus..such increases in income for the poorest churn straight back through the tills of retailers/service-providers..thus ‘benefiting’ many more than those recipients..
..the contra-proof of that economic-boost maxim is that the savaging of benefits by richardson/shipley sucked all of that money out of retailers’ tills at the time..and ushered in a recession in that retail sector..
..and is/was a clear example of economic/ideological-blindness hurting so many..and to this day..)