The author of the economic plan set out by Labour leadership contender Jeremy Corbyn has defended “Corbynomics” in the face of an attack by the shadow chancellor, Chris Leslie.
Richard Murphy, the fair tax expert recruited by Corbyn to draft his economic policy, deepened divisions on the left by saying “Leslie has got this completely wrong.”
In an interview on BBC Radio 4’s Today programme, Leslie singled out Corbyn’s plans for a people’s quantitative easing, which he derided as printing money to “magically deal with all the public service and public investment needs that we have”.
He added: “The difficulty is that if that then provokes higher inflation, if that then means that interest rates go up, who will pay the price for that? It is the poorest and those on the lowest incomes who already find the cost of living very difficult.”
Murphy, author of The Courageous State, an acclaimed critique of neoliberal economics, responded by attacking the Labour government’s bailout of the banks.
Speaking on BBC Radio 4’s World at One, he said: “[Leslie] should remember that it was a Labour government that in 2009 created a programme of QE that eventually printed £375bn to bail out the banks. It didn’t work. It simply boosted bank bonuses and bank profits and ordinary people didn’t benefit.”
He added: “People’s QE is fundamentally different. [It] does have the Bank of England print new money, which is identical to the process that is use by ordinary banks when they lend to business, but it gives that money to people like housing authorities, to local councils, to a green investment bank to build houses, to schools to build hospitals. The very things Chris Leslie says would not be possible if this programme was put into place.”
Challenged on Leslie’s point about high inflation, Murphy said: “Any system of people’s QE would be turned off if we got to a situation of high wages and full employment, but we are so far from that at the moment that we have to tackle the low-wage economy and the lack of productivity in the UK by creating new investment, which is the foundation for new prosperity.”
“This programme is about creating jobs in every single constituency in the UK. It is not costless, there will be a small rise in inflation, but we need it. It would have to be used responsibly, but of course Jeremy Corbyn understands that.”
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Chris Leslie warns hard-left economics risk hurting most vulnerable – audio
Murphy added: “Given the economic situation we face where hundreds of thousands of people are underpaid and aren’t paying tax because they don’t earn enough to do so … The real question for Chris Leslie is why did you support £375bn for the banks when actually very much less would create jobs in every constituency throughout the UK, which is precisely what Jeremy Corbyn is offering by adopting this programme.”
Earlier Murphy also defended Corbyn plans to the blog LondonlovesBusiness. He said: “Jeremy Corbyn wants to create a level playing field for business by stopping those who are tax-cheating to make sure that all those who are honest, upon whom we depend, have the chance to prosper without being undermined by the cheating companies and people who exist in our economy …
Although Jeremy Corbyn’s proposal of “people’s quantitative easing” is described in his economic manifesto as only “an option”, some have hailed the idea as a magic solution to Britain’s economic challenges.
The policy’s cheerleader-in-chief is Richard Murphy, a left-wing tax campaigner, who says people’s QE “would stimulate the economy, boost employment and tackle climate change”.
Mr Corbyn, Mr Murphy and others such as Ken Livingstone say people’s QE would be different to the QE undertaken by the Bank of England between 2009-12 because it would support infrastructure rather than prop up the banking system. On Thursday Mr Livingstone told the BBC: “If we can get the Bank of England to fund the banking system, why don’t we get them to build us a proper broadband system . . . or to modernise our transport system?”
There are many elements of “ordinary” QE and people’s QE that tend to get conflated, however. Here is how the two compare.
The decision on the need for QE
The first question arises over who takes the decision to instigate QE — the creation of additional central bank money. Between 2009-12, that was clearly the role of the BoE’s Monetary Policy Committee, although it required Treasury authorisation.
People’s QE is definitively different: the government would order the central bank to print money and determine the quantity of QE.
In both ordinary and people’s QE, the BoE “prints money”. This is shorthand for saying it creates electronic money — a liability on its balance sheet — which can then be used. There is no difference between the two.
Use of the money created
In 2009-12, the BoE used the money created mostly to purchase existing government debt. Since many people wanted to own government debt, these purchases eased the government’s ability to create more by running a large budget deficit and reducing the pace of spending cuts.
People’s QE is almost identical, since Mr Murphy proposes the central bank buys bonds created by a national infrastructure bank “under government direction and subject to government guarantees”. These bonds would be the equivalent of gilts, which are created by the National Debt Office, also under government direction and subject to government guarantees.
Tax and expenditure
In both cases the government would decide how much tax it would raise, how much it would spend and what it would make a priority. Mr Corbyn is clear infrastructure spending would be a high priority. These decisions are separate from the QE decision and any government has full discretion on public spending.
Cancellation of the purchased bonds
Under the 2009-12 QE programme, the bonds have not been cancelled and the BoE retains the option of selling them into the market. Mr Murphy proposes cancelling the bonds, in effect making the money creation permanent.
Technical purists would argue that no money creation can ever be absolutely permanent because a future government can destroy money just as easily as it can create it. It would simply issue new debt without running a deficit and cancel the money collected.
Propping up the banking system
The 2009-12 version was not intended to prop up the banking system. The BoE bought very few government bonds from banks and the money was not used to recapitalise them. The money required to recapitalise — or nationalise — banks was raised by standard government borrowing, not money printing, regardless of what Mr Corbyn and Mr Livingstone say.
The distinction between people’s QE and ordinary QE boils down to whether the government or officials at the central bank have control of the monetary printing press, and whether the assets are cancelled after purchase.
There is no doubt that people’s QE ends the operational independence of monetary policy as the government, not the BoE. would decide whether to pump more money into the economy to stimulate demand. At present, the MPC is split between doing nothing and tightening monetary policy with higher interest rates. None of its nine members advocates using monetary policy further to boost demand and growth.
Mr Murphy agrees people’s QE would end BoE independence but he says the Bank’s operational independence of monetary policy — introduced by Labour in 1997 — is a myth and is, in any case, undesirable. “If the governor of the Bank of England does not like what an elected government wants to do, then he has to go,” he wrote this week.
If the government prints money for infrastructure spending, this creates an additional problem. Either the amount of infrastructure purchased would be determined by the perceived need for additional stimulus; or the government would first determine the right amount of infrastructure regardless of whether it left the economy with too much or too little demand. The risk is rampant inflation or deflation.
If everyone agreed more stimulus was needed, there is a live debate on the merits of traditional QE and outright monetary financing of deficits by cancelling the public sector bonds created.
Senior figures such as Lord Turner, former head of the Financial Services Authority, have argued in favour of monetary financing, but even as the economy was stalling in 2013 he specifically rejected the case for such a strategy in the UK, which he said had more of a problem of productivity and supply than deficient demand.
People’s QE does not deserve the magic status it has acquired. If a government wants to make infrastructure a priority, it already has the tools. _________________ www.lawyerscommitteefor9-11inquiry.org www.rethink911.org www.patriotsquestion911.com www.actorsandartistsfor911truth.org www.mediafor911truth.org www.pilotsfor911truth.org www.mp911truth.org www.ae911truth.org www.rl911truth.org www.stj911.org www.v911t.org www.thisweek.org.uk www.abolishwar.org.uk www.elementary.org.uk www.radio4all.net/index.php/contributor/2149 http://utangente.free.fr/2003/media2003.pdf
"The maintenance of secrets acts like a psychic poison which alienates the possessor from the community" Carl Jung
Joined: 25 Jul 2005 Posts: 15991 Location: St. Pauls, Bristol, England
Posted: Sat Mar 19, 2016 2:23 pm Post subject:
Political economist Richard Murphy: Osborne's Big Lie, he knows he will never balance the books
Investigative reports: with tax justice campaigner Richard Murphy. Interview with tax justice expert Richard Murphy, discussing this week's Budget: Osborne's failures – less money in and more benefits payments – no chance whatever of a surplus; poor quality press coverage of Budget – microeconomics not macroeconomics covered by London media, no mention of Mervyn King predicting another crash; 2008 banking crisis – banking problems still not addressed; spending 'People's QE' into the economy on infrastructure; effects of QE used to bail out banks; dealing with tax havens – BBC Documentary 2016: Britains Trillion Pound Island - Inside Cayman - start with transparency; money off the gold standard – all money is debt, inflation; Positive Money - get away from debt based money? Mervyn King on Andrew Marr show – whose really running things? – Bank of England run by government; Budget - banks will not be prosecuted for foreign exchange fraud; suicide bomber banks: power of banks – knew government would bail them out in 2008; German and UK stock markets could merge with German boss Carsten Kengeter, who ran the Libor fraud department for Swiss UBS bank, in charge; Adam Smith Institute says people on benefits are genetically different; Richard's book 'Joy of Tax' and search him online to see his blog. Kevin Cahill discusses the latest on his court case against US internet giants for taking money from NSA to spy on British citizens – Safe Harbour and PRISM, Snooper's Charter, NSA gives £20m a year to Microsoft.
Political economist Richard Murphy: Osborne's Big Lie, he knows he will never balance the books
A budget for the UK’s tax avoiders
POSTED ON MARCH 16 2016
For a long time most people have associated tax avoidance with big multinational companies.
George Osborne took some welcome steps to tackle them today: I must give credit where it is due. UK companies taken over by foreign owners who then pile then up with debt to cancel their profits will see that game brought to an end. Think Boots. Think Manchester United. Think the AA.
And companies who try to shift profits to tax havens by relocating the ownership of patents and copyrights to such places, for which they then pay a royalty, will have to pay UK tax out of the payment made. That effectively brings this income back onshore. Think any large multinational doing R&D.
There are also very welcome measures to hit offshore property developers.
But please don’t think it is all good news. If George Osborne was really serious about tackling offshore today he would have announced public country-by-country reporting, and he didn’t so we still don’t know who really needs to be brought to account.
But worse, he opened up massive new tax avoidance opprtunities within the UK. The bigger the difference between income tax rates and corporation tax rates the bigger is the incentive, and the greater is the saving, from running a business through a limited company. Up and down the country accountants will be selling this, literally right now.
And the cuts in capital gains tax will be also be sending those same advisers into fever pitched excitement as they work out how to turn income into gains to save up to 25% tax for some clients.
Don’t be fooled: this was a great day for the tax avoidance industry, but just not the bit we’re used to looking at.
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