A picture of a Richard Murphy

We have a call – nay an insistence – that there must be an economic revolution in the UK. For only then can we gain those things which are and should be the correct economic goals for us to be pursuing. This is according to the Senior Lecturer at Islington Technical College that is. The sadness of this call being that he’s not realised that the economic policy of the last few years is and has been delivering all of the things he demands. Thus, well, what revolution do we need if we’re already getting where he wants to go?

There is, as ever with the source, more amusement as well:

I have argued of late that monetarism is dead. I believe that is an issue almost beyond being worth discussing now. Real interest rates are at what economists call ‘the zero bound’. What this means is that the risk free interest rate at which the UK government can now borrow is around zero, or less, when inflation is taken into account. And, I suggest, that is not going to change.

Well, OK, interesting enough.

Moreover, the tools available to the central bank for meeting this narrow target are limited. They are, in effect, setting the central bank base rate of interest and (since 2009) quantitative easing. The first has hardly changed in a decade; it has now ceased to have any impact. The second is a policy now known to have very little beneficial effect on real economic activity but which does massively increase wealth inequality and also cause some increase in income inequality as well.

All of which is rather odd as it’s QE which has meant – as a matter of design – that the government can borrow at around and about a zero real interest rate.

This really was the point too. We’d like people to be investing in economic activity. That’s a useful way of getting an economy out of a recession. So, lower that risk free rate and anyone who wants to make a return has to go do some real investing to gain it. That’s the whole QE plan right there.

So, what the Senior Lecturer is telling us is that monetary policy doesn’t work because it does work. Monetary policy doesn’t work because the risk free rate is around zero when it’s monetary policy which has driven the risk free rate to zero.

Ho Hum.

It’s an interesting idea, certainly, but quite why anyone not one of the Senior Lecturer’s students who will be graded upon the idea should take a blind bit of notice is difficult to perceive.

Then there’s the demand for the new goals of economic policy:

suggest there should be five targets, all of which are very obviously related. They are:

1 To create full employment; whilst delivering
2 rising median earnings from that employment; against a backdrop of
3 falling income and wealth inequality; to be achieved in an economy where there is
4 ecological sustainability; with the goal that all should share in a
5 flourishing economy in which the wellbeing of all people matters.

In order to achieve this we need:

We need an economic revolution in the UK. This must be all-encompassing, embracing theory and practice. If we were to adopt the above goals, this would be a recognition of the new economic theory we must now use.

Hmm. So, current economic policy has produced that full employment, we’ve a labour force participation higher than at any time since 1971 and we’re really pretty sure indeed that the unemployment left is the frictional amount that we positively desire to have. Median incomes are up since 2014 which is a bit of a vote in favour of current economic policy. Income inequality – without playing any games with the valuation of the digital economy – is down over the past decade.

Ecological sustainability? That’s rather a micro-not macro- phenomenon. And option 5 is just wibble unless it just means that those above are achieved.

So, what damn economic revolution is it that we need then? The current mumbling through from the Tories is delivering what is demanded. We’re done then, we’re on the right track aren’t we?

Well, no, obviously, we’re not. For the entire point of the demand for an economic revolution is to insist that we must be doing stuff different from what the Tories do. But such is the state of university education these days – and among those who teach economics – that the Senior Lecturer doesn’t know the numbers well enough to understand that his insistences are already being achieved. Under the economic policies he so abhors.

Perhaps that expansion of the universities really was a mistake after all?

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  1. “Perhaps that expansion of the universities really was a mistake after all?”
    It’s self-evident that your “perhaps” isn’t required – particularly when the opportunity costs are taken into consideration. Without doubt, Keynes’ silly notion of paying people to dig holes and then getting others to fill them up again would have been less destructive of wealth.

  2. Murphy’s premise is wrong. “monetarism is dead….the risk free interest rate…is around zero….that is not going to change.” Apart from the many politicians who could fritter around more money with even easier money – in an environment where the average person felt safe building a new business on credit, why not borrow more than you need, at zero interest, and double the bet? Easy money has not led to hyperinflation only because of the damage done to the economy by other policies.

    Murphy’s policy goals are to create a pigeon-hole (“job”) for every Briton, at a steadily increasing wage, apart from whether useful work is being done, and especially whether it is being done more efficiently over time. Leftie forelock-tugging such as environmental correctness and proper distribution of money should no more be the basis for monetary policy than which is the best energy technology should be the basis for tax policy.

    It is amusing how often Murphy writes a piece purporting to set out, from first principles, his affectations, then commanding the rest of the economy to get in line. (Yes, even when it is doing so.)