Quantitative Easing (QE) sounded a lot more responsible than throwing money at consumers (out of helicopters or otherwise) when it was used as a response to the 2008 economic crisis. It still involves creating new money, but the cash gets used to buy securities in the financial markets with the intention of sparking economic growth. The man in the street looks upward, but there are no helicopters. And despite good intentions, no money floating down on the breeze.
I’m not an economist but I do know a bit about marketing and as a brand, QE has got a bad name. Giving money to institutions is more controllable than giving it to the public, who may not give it back; and QE did have the effect of helping the global economy avoid a crash landing. But that came at a cost, mainly to ordinary people, when the expected onward lending didn’t happen. As the Bank of England admits the new money in the system went to the banks and asset owners, with the effect of propelling asset prices upwards and depressing interest rates. So broadly speaking, the haves got more as a result of QE, and the have-nots got less.
The helicopters kept on flying over the cities and towns, on their way to country estates and superyachts. Down on the ground, money was scarce, savings rates were low and people began to notice. Austerity, cuts and food banks became part of populist politicians’ rhetoric, and the divisions and inequalities in developed societies became more and more apparent. The wonks and the theoreticians started to look for new answers.
One is Modern Monetary Theory (MMT) – which is about as modern as Modern Art having been invented around the same time (1905, by Georg Knapp). It basically means printing money again (because governments can do so with impunity, according to the theory), but instead of loading it into helicopters or giving it to banks it gets spent by the government on useful projects which create full employment. The main risk is then of inflation, which is (theoretically) controlled by taxation. That would mean trusting politicians to yank on the controls – at times it might not be popular to do so.
As a reaction to QE and ‘austerity’ the Labour party’s manifesto of 2015 talked about an idea called ‘Peoples’ QE’ – “upgrading the economy to invest in new large scale housing, energy, transport and digital projects: Quantitative Easing for people instead of banks.” Economists like Richard Murphy liked it – perhaps more surprisingly, so did the Financial Times. Unfortunately it was quickly rebranded by others as ‘Corbyn’s Magic Money Tree’ and, in the way complex economics are often reduced by being likened to household budgeting, it didn’t fly.
Labour’s economic thinking since has moved further back to the mainstream, via ‘moral economics’ to ‘democratising capital’. There are high initial costs to some of the ideas, like renationalization (though this time around with distributed, not central control) and it would mean a lot more regulation, but the objectives of reducing inequality, greater collective happiness and the idea of ‘taking back control’ of the economy at a local and individual level are hard to argue against.
Helicopters are difficult to fly. Unlike ordinary aircraft if you take your hands off the controls, they tend to crash – an unfortunate parallel for more interventionist economic policies like ‘helicopter money’. But that’s no reason not to think about them seriously as ways of lifting inequality and the social and political tensions to which that has contributed. We need to communicate some of these well-intentioned, more radical ideas in ways that people on the ground can understand both rationally and emotionally. We need to rebrand new economic models in ways people can grasp, believe in – and maybe even make an informed decision about.
Written by AML CEO Ian Henderson
Published by Chartered Banker