I’ve cast my vote for the Labour party leadership elections. I didn’t vote for but expect Jeremy Corbyn will become the new leader of the party.
Whilst I don’t agree with his views I do respect him for speaking from a position of principle rather than formulate a calculated response to every question based on what will get the highest approval rating.
In a recent leadership debate between the candidates on Channel 4 news Yvette Cooper spoke with incredulity regarding the peoples Quantitative Easing (QE) programme. What I find odd is that QE has been a key economic tool under the current government. So if its okay for the Conservatives to use this tool is it really that daft for Labour to deploy the same mechanism?
I’ve done some digging around to better understand Jeremy Corbyn’s QE programme. My conclusion is that there are elements of this plan that have merit and worth considering. Its not as daft as it sounds.
Francis Coppola provides a good analysis of the plan. In summary there are two elements to the plan:
- Government spending on infrastructure projects, housing etc.
- The Bank Of England (BoE) purchasing government bonds
The government sells bonds to the BoE and uses the money on much needed investment projects. This spending both directly and through a ripple effect stimulates the economy.
Opponents argue that government spending will lead to inflation. Yvette Cooper mentioned this as one of the reasons against the plan. Francis has argued, quite rightly, that the BOE has an inflationary target and would raise interest rates were inflation begin to rise. This is as per the way in which the BoE functions today.
Government bonds will not necessarily need to be purchased by the BoE. Offer an attractive interest rate and UK savers will be willing to buy them.
So elements of Jeremy Corbyn’s QE programme are worth considering. We need to keep an open mind.