Uberising monetary creation

novembre 16, 2016 0 Par Michel Santi

How can we break free from the dominant ideology which asserts that States are only capable of budgetary discipline if they have to finance themselves via financial markets? Neoliberalism teaches us that market sanctions on lax nations will be exercised in the form of higher interest rates, meant to put spendthrifts back on the right track by either increasing taxes or reducing expenditure. This is why the establishment is fiercely opposed to central banks’ monetary creation, which would support States in their spending frenzy since their various governments would only have to sell their bonds to their own central banks, who would finance them thanks to their printing presses… However, it seems that the impact of quantitative easing has indeed been overestimated. QE of course wields undeniable monetary (and psychological) power that has a largely positive stimulus effect on various and diverse assets such as property, stock markets and art. Since these repercussions do not concern the economy in its entirety, these QE schemes have, however, not reached the objectives of recovering growth and re-establishing inflation that were initially sought after by central banks.

The truth is that central banks and their instruments have been rendered almost completely ineffective by certain States’ austerity policies. As genuine fiscal and budgetary drivers which allow States to borrow cheaply in order to spend and invest, quantitative easing, monetary creation and negative rates are thus effective only within the framework of an expansionist government policy. If these same central bank drivers are largely neutralised in austere conditions, then they become literally counterproductive as soon as austerity is imposed in a climate of unemployment and recession. Consequently, they benefit only a tiny number of privileged people who are losing the plot. Opposed to monetary creation with every fibre of their being for fear of inflation and in order to not help out the most helpless who are having to live off simply the fruits of their labour, these fat cats are nevertheless perfectly aware that it is to this same monetary policy that they owe the take-off of their assets. It is therefore when the QE schemes benefit only a tiny minority that they become regressive, whereas they benefit the whole economy to full effect if they allow the financing of investment plans and programs aimed to ease up access to loans for businesses and households.

But how do we make sure that this monetary creation doesn’t get reduced to the same old transfer of wealth that is always in favour of the richest, in a situation where the dominant line of thought is constantly stigmatising debts and deficit? By transferring funds directly to citizens, in order to improve their purchasing power and increasing their ability to consume. It is indeed the uberisation of spending that governments must promote in a situation of economic stagnation, in order to re-establish inflation and to let growth take flight. All the while accompanying these handouts with diverse protectionist measures in order that this consumption benefits local and national businesses, without further stifling external trade. Why not distribute 2,500 euros per household per year, as long as growth and inflation are below 2%? As for the impact of such liquid transfers on the state of the economy, it is possible to calculate it by finding its multiplier effect: in other words, for 100 euros given, what are the results in terms of improving GDP? While it is not possible to rely on past statistics given that such experimentation has never been attempted, we can, however, analyse the effects of tax returns that took place in the USA in 2008 when cheques were sent to taxpayers by tax offices in the height of the crisis in order to relaunch the economy. In these circumstances, the multiplier effect was at 1.3. Transposed onto the distribution of cash, this would arrive at the conclusion that 1% of GDP given to citizens would equal a recovery of 1.3% of GDP, and so a rise of 2.6% of GDP in the case of citizen handouts equalling 2% of GDP.

Fresh in the knowledge that it has been proven that these returns in the form of tax credits have had a much less favourable effect than the provision of actual money, it is therefore possible to deduce from this that this social credit’s multiplier effect would most likely approach 1.5, a more honourable level in macroeconomic terms. Such a multiplier would guarantee growth and a visible fall in unemployment. This social credit can also be optimised by distributing it to only to the 75% lowest-earning taxpayers. Such a configuration would clearly have an immediate beneficial impact on growth, without the collateral effects of QE schemes which inflate speculative bubbles and worsen financial instability. By this means, monetary creation itself would be much less intensive since – referring back to the example above – a handout of 2,500 euros per family per year represents around only 2 months of quantitative easing by the European Central Bank, which as a result would use its printing press less, which would have spectacular effects on growth and inequalities. So let us not get lost in the maze of the semantics of central bankers who are reluctant to share this social credit under the pretext that it is rather a question of governmental recourse to fiscal measures. In a situation where governments are paralysed by the establishment, and while politicians – and politics – are no longer credible in any way, it is vital that these liquid transfers to the general population become a full-on instrument of monetary policy.