As concerns mount over the state of the economy, George Osborne has said that he sees no barriers to a further round of quantitative easing, possibly moving into riskier asset classes than gilts.
Adam Posen, an external member of the Bank of England’s monetary policy committee, is expected to call for the Bank to do exactly this in a speech tomorrow (13 September).
As a citizen of the country in question, I have a problem with this approach. I want my Government and my Bank of England to be in the business of providing stability. I want the role of risk-taking left to the markets.
That, of course, is a purely personal preference. Could such action make sense from an objective standpoint?
Economists are right to notice that the economy is not growing. And it is understandable that they feel uncomfortable about this: they feel it is their job to understand how the economy works, and to use that understanding to predict the future and to recommend policy changes. (Never mind that they had a poor track record, even during less complex times.)
The more the economists’ old stand-bys do not work, the more uncomfortable they feel.
But to use an analogy, if you’ve given medicine to a person and it hasn’t worked, rather than giving them enough medicine to kill a horse, might it not make sense that you’ve made the wrong diagnosis, or the medicine might be wrong?
Dropping the metaphors — taking on more debt (and more risky debt at that), might be the right thing to do if you believed that substantial new growth would appear, enough to pay-off that debt. That, surely, is not the situation we find ourselves in.
But if you believe that the Earth is full, then it is difficult to see where that growth can come from. The right thing to do in that situation is to realise that the paradigms for how the economy works (which were defined in the 18th, 19th, and 20th centuries) no longer hold true.
In that case it makes sense not to take on the debts of others. And to realise that doing so would merely compound the problem, accelerating the economy’s demise.
The job of government is as far as possible to create the conditions for prosperity. When the existing paradigms no longer achieve that, it is not time to take on the debts/problems of others. It is time to start looking for a new paradigm.