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Letters: Print money for investment not consumption

Simon Jenkins put forward a sensible argument (Growth follows demand, so give people cash to spend, 7 September), but then spoils things by the remedies proposed. Since Keynes, it has been clear that recessions are caused by a lack of demand and he is quite right to point out that our “public deficit is not an intolerable proportion of domestic product”. Government policy will have the effect of slashing demand in the UK economy at exactly the time when the opposite action is required.

To suggest, however, that “printed money… should go directly to consumers” is to risk a rerun of the unsustainable boom which was behind the crisis. Consumers with more money will not only spend it on UK products, but will save some of it or, more likely, spend it on imported manufactured goods. Neither of these will boost domestic demand. Even if they do spend on UK products, past evidence suggests it is unlikely to be on items which promote long-term sustainable development.

Demand is certainly lacking and is likely to fall further. But what is needed is not more consumption, but greater investment, by both private and public sectors. For example, renovation of our creaking railway system, repairs to crumbling schools or a major home-building programme, such as Macmillan’s in the 1950s, would all boost domestic demand, while also contributing to long-term development. The boost to the high street from greater consumption might see more imported clothes and fast food sold, but would do little for our long-term economic prosperity.
Mike Painter

• Simon Jenkins says correctly that the objective should be “people spending, shops ordering, factories reopening and services employing”; and a voucher scheme for leisure spending, as tried in the Far East, warrants support. In addition to huge bank bailouts, the Bank of England has printed £200bn through quantitative easing. This was done, we are told, to encourage the banks to lend to the real economy. They are not doing so.

What is required now is not more of the same, but citizens’ quantitative easing, which would directly benefit ordinary people doing ordinary jobs, creating real and socially productive economic activity. Citizens’ QE could comprise the issuing of a £200 voucher to everyone over the age of 18 which would be time-limited, non-transferable, non-cashable by the recipient and limited to the purchase of certain goods and services from small- and medium-sized enterprises, rather than large corporations. The money used to back the vouchers would be printed by the government and would not require further borrowing. Such a system would cost £9.6bn – small change compared with the hundreds of billions of taxpayers’ money already spent propping up the banks. State intervention done in an instant for the City can be replicated on behalf of ordinary citizens.
John Slinger
Editor, Pragmatic Radicalism: Ideas from Labour’s New Generation

• From the 50s until Thatcher, almost every penny of the UK tax take spent on capital goods was spent within the UK with nationalised industries and major private sector manufacturers, on heavy plant and machinery, for example. Since the acceptance of the mantra “public bad, private good”, not only have swathes of UK manufacturing and jobs gone, the tax take has also increasingly gone to foreign manufacturers to pay for the goods we now need, along with the profits of the privatised utilities and PFI contractors.

So the wealthy few have engineered a system where most of us struggle to pay our taxes to fund a tax-haven economy where only the seriously rich benefit. Breathtaking in its thoroughness, it has effectively destroyed the carefully built socioeconomic structure of our once liberal democracy.

Robert Straughton
Grange Over Sands, Cumbria

• Thanks to Burke, Irvin and Weeks for some refreshing common sense on economic policy (Cuts will not end the crisis, 5 September). But the authors seem to put exclusive faith in the use of the financial system, with a national investment bank and government borrowing as a cure. As long ago as 1948, in his book The Economics of JM Keynes, Dudley Dillard was pointing out that there is no need for that, since the government can finance extra spending directly, by creating money itself, and without having to pay bankers’ bonuses, interest and so forth.

QE is money creation, but it is being channelled through the financial system, rather than being spent, in the hope that lending and borrowing will increase and thus raise aggregate demand. This is, predictably, not having much impact (“pushing on a string” is what Keynes compared it to). To make matters worse, while supposedly trying to stimulate the economy by this means, government is at the same time strongly depressing it by cutting spending. The reality of recession is that it is a complete and irrecoverable waste. Moreover, it is not only the unemployed who lose, since the employed have to pay to support them. That waste is yet greater, as the authors stress, because capital formation is diminished.

Create money and spend it. Simples!
John Levi
Abingdon, Oxfordshire

• Lynsey Hanley spots the UK’s housing problem (Comment, 31 August) when she refers to the relatively low level of German home ownership – about 30%. In other relatively successful or rich countries, such as Switzerland, the level of owner occupation is even lower. Surely we should know by now that our economic problems are largely due to domestic consumption financed by our overvalued and otherwise unproductive existing housing stock.

As in the US, this folly seemed to offer some respite given the collapse of manufacturing and the traditional economic base. So while one main task for government is to encourage the improvement of real incomes, a vigorous public-sector housing programme should also have a permanent part to play. At the moment, we get neither.
Des McConaghy
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