Finance Bill — House of Lords, 2016-09-13
Topic: Macroeconomics
Meghnad Desai (Labour, Centre-left): My Lords, until about five minutes ago I was very worried for the noble Lord, Lord O’Neill of Gatley, because there was hardly anybody behind him on the Back Benches. When I counted, there was often only one person— probably assigned for that duty—and when they went off, somebody else came in rather morosely. I was thinking of when somebody was to be sacked from the politburo in the old Stalinist days, and that maybe this is the notice the Minister has been given. But now the word has gone out and the troops have come to back him up, although I see that none of them will speak As my noble friend Lord Darling said, we are discussing a Budget from so long ago that is not just déjà vu but déjà passé. The issues we have to consider are not so much those in the Finance Bill before us, and on which my noble friend Lord Hollick and his committee have made some useful comments. In the new situation we face of Brexit and its unknown and unestimated effects, however, in which new direction will the economy go Let me first take up the issue of monetary policy. Many people have mentioned that we—the Federal Reserve, ourselves and the European Central Bank—have been relying on QE for many years. Monetary policy has now come to the end of its usefulness and there is nothing much that policy can do. Obviously, everyone would now like to have more of a fiscal policy boost. The question then is: does that mean abandoning the strategy that George Osborne set of continually lowering the debt and trying to manage the deficit? Happily, the goal of a surplus by 2020, which I thought was foolish, has been abandoned There has been a lot of debate in the blogs about helicopter money. As some noble Lords may be aware, this is being debated among economists: if money has an effect on the economy, how does it transfer itself to the economy? What QE has told us is that money does not transfer to the economy. You can print away and buy as many bonds as you like, but money does not move out of the banks and the corporate cash reserves. Not much investment has taken place, even at very low interest rates. All we have is merger and acquisition activity, buying and selling old capital. No new capital is being generated One proposal is that we should have an active spending policy—perhaps for infrastructure, perhaps for other things—that should be financed purely by printing money, so that debt will not go up. There are learned articles that I can refer the noble Lord to. The idea is that if you run a deficit, but finance it purely by printing money, the debt does not go up. Of course, we were told by Milton Friedman and others that the danger was inflation. If there is inflation, every central banker will be relieved because they are hankering for it. In Britain, the figure is down to 0.6%, so if there were to be inflation, which I doubt, it would be welcome. One of the things the new Chancellor may consider between now and the Autumn Statement is some form of helicopter money The noble Lord, Lord Skidelsky, and I have been advocating another kind of helicopter money, which is not to waste it on infrastructure and things like that but to give it directly to every person on the electoral roll. Just give everybody £1,000 and see what happens. That would definitely boost the economy. After all, we are giving so much money to the banks and the corporates; we may as well give some money to the punters who have to pay for bank failures. That is not monetary policy or fiscal policy; it is fiscal policy with certain unorthodox aspects of monetary policy. Therefore, it can keep the debt at its current level, or maybe lower, but finance government spending. I know it sounds surprising, but it used to happen all the time before monetary orthodoxy took over Turning to productivity, the noble Lord knows that I have grave doubts about the statistical measurement of productivity. I read Robert Gordon’s massive work on why US productivity has gone down and why it is difficult to revive. It struck me that all the notions we have in the economics of productivity, such as total factor productivity, come from a time when manufacturing was dominant: from 1945 to 1975. When manufacturing is dominant and production is in solid commodities, productivity is very easy to measure. We do not have that economy any more. We have a highly service-oriented economy in which one of the ways quality shows itself is by a continuous fall in the price of new products. Every time a new gadget comes out, it is priced lower than the previous edition. We need to think much more radically about what it is we want to achieve when we are trying to measure productivity. Productivity cannot be an aim in itself; it has to be about enhancing welfare. If something is enhancing welfare by improving quality and getting prices down, we are missing something if we go on thinking that productivity is not going up. Some radical thinking is required. Perhaps one of the sacked former Ministers could be employed to think about this; maybe the ex-Chancellor himself, because he is a very thoughtful man Finally, I shall say one thing about Brexit negotiations. Obviously, the priority of the people who voted to exit is migration but, as many of my noble friends have said, the complexity of the negotiations on all the other aspects have to be borne in mind, especially financial services. Financial services are obviously a major part of our economy, and we should try our best to preserve as much as possible of the current portfolio—our passport rights and whatever else we can get However, one has to be careful politically, because the City is not popular among people who voted for Brexit. We should remember that. A lot of people are still very angry about the rescue of 2008 and about the bonus culture, to say nothing about LIBOR and all those criminal activities. My advice to the Government and to the City would be: if you are going to defend the City—as you should—prepare the political ground carefully, otherwise the Back Benches in the other place will revolt.