THICK END OF THE WEDGE: Workers, unite for quantitative easing

JEREMY Corbyn, a mild-mannered left-winger who cut his political teeth protesting against apartheid in the streets of London outside South Africa House in the ’70s and ’80s, has just been elected leader of the Labour Party in the UK.

Still the official opposition, Labour was badly mauled at the general elections in May. Its leader, Ed Miliband, resigned, as the British correctly do at the slightest humiliation, and the party has conducted a quite extraordinary and open and fierce leadership election since. Corbyn won it convincingly last weekend.

In the approach to his victory, there has been no small sport comparing him with unsuccessful Labour leaders of the past such as Michael Foot, who Margaret Thatcher humiliated all the time and, to an extent, Neil Kinnock, who never won an election either. It was only when Tony Blair and Gordon Brown combined to remove trade unions’ power over Labour 20 years or so ago that the party became electable again.

Corbyn though, harks back to the years before Blair. He wants to roll back privatisation, support the Palestinians and scrap Britain’s nuclear submarine fleet. All good Labour ambitions from way back.

But he has not been asleep all this time. He watched first the US slip out of a severe financial crisis, then the UK do the same and now the European Union (EU). They did it via a method of printing money and feeding it into their economies as a stimulant called quantitative easing (QE).

In all three cases it has worked. The US recovery is reasonably robust, the UK’s and the EU’s a little more hesitant.

In a way, the Chinese response to the collapse of its equity markets has consisted of a similar remedy — throw money at it. In the Chinese case, they have spent nearly a quarter of a trillion dollars propping up their stock markets, keeping money in the pockets of ordinary citizens the state had encouraged to invest in equities.

Anyway, out of all of this emerges Corbynomics. The Labour leader is developing what he calls People’s QE — the notion that money could be printed not to bail rich investors out of collapsing banks, but to build infrastructure. Naturally, Corbyn has his pet projects in mind and this is where even economists who think the idea interesting walk away.

Here is one of Britain’s best economic analysts, Anatole Kaletsky: “Corbyn is right,” he says, “to maintain that the Bank (of England) could create more money out of thin air and channel it into the economy more effectively and equitably than it has through its misguided policy of what might be called ‘conventional’ quantitative easing. But the moment Corbyn suggests this newly created money should be used as a political slush fund for government to spend on whatever it fancies, the conjured-up wealth turns to dross and a coherent economic policy turns into a recipe for the next Labour financial disaster.”

Hidden in there is a real compliment to Corbyn however, and it got me thinking (idly, you understand) what we might do here to boost economic growth. Listen again to Kaletsky:

“Conventional quantitative easing works mainly by making the rich richer. The Bank buys bonds in financial markets, thereby transferring newly-created money to banks, hedge funds and other investors and boosting the prices of bonds, shares and other assets.

“Now consider a variant. Imagine that the Bank of England, instead of spending £375bn on buying bonds from banks and hedge funds had sent cheques of £20 a week to every man, woman and child in Britain and promised to continue this until one of two things happened: either the British economy returned to its pre-crisis growth trend or inflation exceeded 2% consistently for a year.”

Cool hey?

The African National Congress should be excited, even though Corbyn isn’t Russian or Chinese.

We are not threatened by deflation but our growth is dire and many thousands of South Africans are facing unemployment.

Only two things traditionally grow SA’s economy — high commodity prices and consumers. I recall Economic Development Minister Ebrahim Patel telling Parliament years ago that we could not shop ourselves out of recession. But we can. And we did.

Could a People’s QE here — where the cheques are sent directly to individuals — get us above 3% gross domestic product growth? Could it get us to 5%?

In an economy where much is still hidden, it might be difficult to accurately measure the effect of every citizen getting R200 a week from the state for, say, three years as a national economic stimulant.

Experience of quantitative easing thus far (and trillions of dollars have been spent creating it) is that the inflationary effect is minimal. And, further, allowing people the luxury of deciding what to do with the extra money would hugely improve the national mood. The thing is, when you hit your target, it stops.

Off the top of my head, if every man, woman and child in SA got R200 a week for three years it would cost R1.5-trillion. We’re already planning on spending that on nuclear power.

Play along though, and introduce variations. Could recipients be incentivised to invest in equities or somehow save the money? Could the state, having invested the money in you, ask of you that you buy its bonds and help finance infrastructure development?

I don’t know much about Jeremy Corbyn, but I love it when even anti-capital adventurers like him help us expand our view of how capital can not only be made to work for people but, in the process, grow the national wealth as well.

SO, load shedding has returned, breaking an almost month-long winning streak for Brian Molefe and his team at Eskom.

Whatever circumstances have led to load shedding becoming so rare, I am thankful for them. Molefe must be having some kind of effect. It can’t just be timing, or luck, or a slow economy.

Someone is getting something right. And, anyway, the kit taken out of the grid (thus causing a supply cut) was Mozambican and not even Eskom’s. I think some congratulations are in order.

My only fear now is being load shed during the Rugby World Cup. It’ll come just as Pat Lambie lines up a vital drop goal or ducks below a grasping (and, typically, offside) Richie McCaw with 25m to the All Black try line.

Just thinking about it makes me want to scream. At Eskom.

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