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Quantitive Easing for the People

Recent economic history provides a salutary lesson to Scotland and independence supporters. It illustrates the power of having your own currency, the severe handicap of not having it and how, even with it, your policy can either magnify unfairness in a society or potentially radically reduce it.
Quantitative Easing (QE) is the buying of bonds by the Central Bank: it allows the interest rate on those bonds to drop and, theoretically, lower interest rates keep more cash in households’ pockets; and it empowers Banks to purchase assets from banks, pension funds and other investors, freeing cash for them to acquire other investments which will give them a higher return than the bonds they had.
And this is what the Bank of England and other central banks did from 2008 onwards – thanks to having their own currency, created with a few taps on the Bank keyboard. They lowered interest rates giving borrowers some relief in areas like their mortgages and combined this with buying assets from distressed banks that were on the verge of collapse. (After having recapitalised them with billions of pounds of taxpayer money.) The banks suddenly had tens of billions to spend which was the plan: sure enough, they spent it.
HSBC chief economist, Stephen King, after the dust had settled, commented that QE had ‘unfortunate distributional consequences’. It did. All of them obvious and foreseeable. By purchasing distressed assets, and taking low yield bonds from them, investors now had money to burn. Searching for higher returns and assets that would inflate, they plunged money into the stock market, housing, commodities, fine art, wine and more. The effect was the inflation of prices in these markets benefiting the investors and another class of people: the already wealthy.
Manifestly unfair, many would claim. The flawed theory was that the wealthy would acquire shares and bonds in companies, allowing them to spend, hire people and boost the economy. It worked to a certain extent. Some people saw the stock market boom and felt confident enough to spend money, some companies expanded, but a lot of money went into assets that would create little employment, such as houses, and a sizable amount of money went abroad where returns were larger, not benefitting struggling workers here. Nor did re-capitalised banks lend as much as they could have which saw many companies go to the wall.
In terms of the UK, the recession was not as deep as it might have been, yet it still did not prevent almost ten years of Austerity and a greater dislocation between economic groups in society than even under Thatcherism.
It could have all been so different. In 2008, as now, the economic challenge was two-fold: people were in debt that they did not have the money to service and banks held debt that they could not get repaid. Really, two sides of the same coin. The government’s solution then was dependent on whether the billions at the top of the champagne-finance pyramid trickled down to their glass at the bottom.
However, if the Bank of England had treated every taxpayer as ‘distressed’, they could have, as the Australian government did through tax refunds, issued a set amount directly into the bank accounts of ordinary people. This policy directed money to the economic actors that needed it ‘on the ground’. Borrowers could reduce debt, banks’ bad loans would transform into good loans or be repaid, and spending would return to the economy. To use an analogy, instead of pouring a massive bucket of water into the middle of the field hoping it waters the field, distributing money to individuals in all sectors of the economy is like using an irrigation system to ensure all areas of the field are properly quenched.
Even the most selfish and avaricious financier would have to admit that increased spending and recapitalisation of the banks by means of people’s debt being relieved, by themselves, would have benefitted them too. Therefore, for all the people that slowly descended into poverty, for all the businesses that slowly ground to a halt, for all the families that broke down under the stress of straitened circumstances, the decision to deny them anything but pot luck and to enrich the already prosperous is a needless and wanton tragedy.
It is never too late to make matters better. Scotland, independent with its own currency, can use ‘QE for The People’ in two different forms: it can be injected into people’s pockets to boost short term spending (and relieve their debts, if they have any) and it can be used as a jobs creation method: investing in infrastructure, training and new technologies (putting more money into local economies and benefiting business).
A Scottish currency is the fulcrum of this policy, alongside an understanding that money put into the foundation of the economy bails out everyone.
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