Guy Dauncey reviews Can’t We Just Print More Money? Economics in Ten Simple Questions, by Rupal Patel and Jack Meaning, Bank of England.
Two economists from the Bank of England have written a book that is humorous and persuasive. Their answers to their ten questions are re-assuring – just as a fraudster might be when asked by his wife if he is having an affair, and the truth is yes, and it’s about to cause bankruptcy and shame.
Behind their calm words and amusing stories are critical truths they appear loath to acknowledge. The seriousness of the climate crisis, the biodiversity crisis, the affordable housing crisis, the cost of living crisis, the global food crisis, and the crisis of democracy – by their telling, there’s nothing to worry about. Economics has it all handled, even though the UN climate chief Antonio Guterres has said that “we are on a highway to climate hell with our foot still on the accelerator”.
They write that the climate crisis is partly the result of short-termism, and market failures colliding, but all they have to offer by way of a solution is carbon taxes, and carbon credits trading. They make no mention of the critical role of regulation; of acting with the resolve that governments adopted during World War II; or the $16bn a day that governments give in subsidies to fossil fuel companies.
There is a brief reference to labour unions, but no mention of efforts by corporate owners to suppress labour unions.
They describe the labour market as being in tension between workers and employers. However, what happens when the workers become the employers? This is not part of their story. The 84,000 worker-owners in the cooperative complex of companies at Mondragon in northern Spain deal with a downturn in the market not by firing their members, but by negotiating to reduce their wages to keep everyone employed. There is a brief reference to labour unions, but no mention of efforts by corporate owners to suppress labour unions.
When discussing economic growth, they offer a good critique of gross domestic product, and they give a positive nod to critiques of endless economic growth, but there’s no mention of the contribution that colonialisation, the theft of land, and slavery made to economic growth. Regarding trade, they write about specialisation, comparative advantage, and free trade, just as Ricardo said, but there’s no mention of the use of trade barriers by America and the European nations to reduce imports as they built their economies, and their determination not to allow similar tariffs by nations in the global south today.
They cover Milton Friedman’s theory that inflation is always caused by an excess of money in the system, now generally on the rubbish heap of economic ideas.
There’s a passing reference to community currencies, and healthy criticism of cryptocurrencies – written before Sam Bankman-Fried’s bankruptcy. (Did a Ponzi-merchant ever have a better surname?)
When discussing inflation, they cover Milton Friedman’s theory that inflation is always caused by an excess of money in the system, now generally on the rubbish heap of economic ideas, but there’s no discussion of the wildly excessive housing inflation, encouraged – ahem – by the low interest rates and quantitative easing policies of the central banks themselves, or of the excessive profit-taking that is happening, taking advantage of the fog of inflation.
So what of money? The authors go straight to the truth of things, that money is a system of mutually- agreed trust. There’s a passing reference to community currencies, and healthy criticism of cryptocurrencies – written before Sam Bankman-Fried’s bankruptcy. But central banks create money too, and not just a little. Between 2010 and 2022 they added $41tn to the global economy as quantitative easing, using it to buy bonds and debts from banks and corporations, sending the price of assets soaring and generating billionaires like confetti, along with hostility to élites and conspiracy theories which could destroy democracy.
There’s a passing reference to community currencies, and healthy criticism of cryptocurrencies – written before Sam Bankman-Fried’s bankruptcy. (Did a Ponzi-merchant ever have a better surname?)
The authors are upfront about the reality that banks conjure money out of thin air, and that one of the roles of a central bank is to require banks to carry sufficient reserves to cope in a financial storm. As to any criticism of the way banks operate, however, they are silent. Financing the climate crisis ($2.66 trillion since the Paris climate agreement) through fossil fuel expansion? Silent. And no mention of the value of cooperative and public banks, which in Germany manage 42% of all assets. It’s as if they don’t exist.
“Why did no-one see the crash coming?”, the late UK Queen famously asked. The authors are sanguine, pointing out that “without fail, there has been an economic crash in each of the last seven decades.” They discuss the uselessness of most economic models, and make it seem that a financial crash is like a sudden storm that no weather forecaster could ever predict. They fail to acknowledge the role that financial deregulation played – something the bankers themselves lobbied for. Permitting commercial banks to gamble with depositors’ money, weakening reserve requirements, discouraging financial health inspections, allowing mergers that made banks “too big to fail” – none of these is deemed worthy of mention. They also fail to ring any alarm bells about the “permanent distortion” that central bank policies have created, enabling risky borrowing to increase without any connection to the real economy, based in the faith that if there is trouble, the central banks will come to their rescue.
To their credit, the authors acknowledge that in the recovery from the 2008 crash, the 1% with the most wealth enjoyed an income rise of almost 12%, while everyone else saw no benefit.
And so to the title – can’t we just print more money? The chapter makes it clear that they can, and do. Following the 2007-8 financial crisis the Bank of England printed £1tn, using it “to buy things in the economy.” Better health care? Affordable housing bonds? Climate solutions bonds? No, they used it to buy government bonds and troubled debts off the banks and corporations, giving them unencumbered cash, which the banks used to finance low-interest mortgages, driving up housing prices, and which corporate executives used to buy back their shares, driving up their value and their personal wealth. To their credit, the authors acknowledge that in the recovery from the 2008 crash, the 1% with the most wealth enjoyed an income rise of almost 12%, while everyone else saw no benefit. What they fail to acknowledge is that it is they themselves who contributed to the windfall by artificially inflating the value of assets.
They close by writing that “the more you know about economics, the better you understand the society you inhabit.” But they are selling the neoclassical economists’ creed, which by its own admission is the economics of selfishness. What we need, to get us out of our mess, is the economics of kindness.
