“And a surprising number of central bankers are warming to the idea, in private”

QE for the PEOPLE
by @zoesqwilliams  /  4 October 2015

“In its broadest sense, the phrase “there’s no magic money tree” is just a variation on “money doesn’t grow on trees”, a thing you say to children to indicate that wealth comes not from the beneficence of a magical universe, but from hard graft in a corporeal reality. The pedantic child might point to the discrepant amounts of work required to yield a given amount of money, and say that its value is a social construction. Over time, that loose, rather weak-minded meaning has ceded to a specific economic critique; Jeremy Corbyn – along with anyone who challenges the prevailing fiscal narrative – is dangerous and wrong, since he wants to print money. Money cannot be created from nowhere, because there’s no magic money tree. End of.

The flaw in that argument is that all money is created from nowhere. In normal circumstances, it is created from nowhere as credit, by private banks, and lent to us, usually (85% of the time) in the form of a mortgage on an existing residential property. Decades of credit extension have perverted the housing market to turn a mortgage into a lifetime’s bonded servitude. The economists Jordá, Schularick and Taylor argued convincingly last year that the causes of this economic crisis, the next and the one before are all, fundamentally, the extension of credit and its impact on house prices. So the magic money tree isn’t gushing cash in a socially responsible fashion (if it were used responsibly, it wouldn’t be magic) but the idea that we have a centrally planned, carefully stewarded monetary policy, with finite creation and demonstrable long-term aims, which some loonie leftie wants to come along and unravel, is simply wrong.

In abnormal circumstances, such as the ones we’ve lived through since the financial crisis, central banks are also magic money trees. In the bizarre construction of current economic orthodoxy, you’re not allowed to say so, even though the Bank of England has created £375bn in quantitative easing (QE); the Federal Reserve bought $1.25tn worth of mortgage-backed securities in its first round of QE; the European Central Bank had as a core principle that it couldn’t create money until, suddenly, in awesome amounts, it could; the Bank of Korea has a stimulus package, as does the People’s Bank of China; and Japan started it. Central banks typically justify money creation on the basis that it’s temporary, it’s unfortunate, it’s driven by the crisis and it will ultimately get back to normal.

None of that alters the fact that no bank had that money in savings. I recently said out loud, “we do have a magic money tree, it’s called the Bank of England” in a Newsnight debate with a former adviser to Blair, John McTernan. He made a face like a politician accidentally talking to a member of the public but what the camera didn’t catch was Evan Davis, who stuck his tongue out, like a cat taking a pill. It was days ago, and people are still tweeting me pictures of the Zimbabwean dollar and the Weimar Republic, saying “is this what you want? IS IT?”

Quantitative easing is bizarrely unapproachable, even though it’s happening right across the world and its unwinding will dominate the economic picture for years to come; one is allowed to reference QE, so long as one maintains at all times a technocratic tone, to indicate that one understands and approves of it as nothing more than a lever to create stability. It was the best idea ever, until you suggest something similar could be done for a social purpose, and then it’s the most perilous idea ever. To interrogate why the benefit must always go to the existing asset-holding class, why human ingenuity can’t devise anything more productive and equitable, is to reveal the shaming depth of your incomprehension. It’s not that you don’t understand money; it’s that you don’t understand the exigencies of the debate, which are that you sign up to a number of false principles before you start.

It turned out that the “no money tree” brigade meant: “If you create money infinitely, that will cause inflation” That is a really curious argument against Corbyn’s people’s QE, like going up to someone eating a banana and saying: “If you eat limitless bananas, you will give yourself potassium poisoning.” There’s a secondary argument about the independence of central banks from governments, which is actually rather an elegant example of our dishevelled politics: if the government issues no directive to the Bank of England, and all the gains of QE go to the wealthiest, that’s “independent”. If the government had said, invest this in, say, the green economy, that would have been independence lost. It has become normal to see upwards redistribution as a law of the physical universe, and anything else as the interference of a heavy-handed state.

None of this is to say that people’s QE is straightforward and unproblematic; Corbyn is talking about spending on infrastructure (housing, broadband), whereas that phrase as it was coined described helicopter money, or overt money financing, literally getting money into the economy by randomly giving it to people. They’re two discrete propositions – overt money financing and green and social investment – and rolling them into one doesn’t do much to promote understanding on this terrain. However, the real barrier to debate is, as with so much in the realm of debt and austerity, that it’s conducted in bad faith, with infantilising aphorisms, aimed not at deepening understanding but at shooing away public interest with unavoidable economic realities. As a tactic, this has reached the end of its plausibility.”

“The adoption of basic income would be an economic revolution, but it will fail if the source of funds is even higher market-crushing taxes. A complete and successful revolution towards economic justice and prosperity requires the funding of basic income from a land value tax. The people of Finland have valued their national independence and social justice, and they would find the fulfilment of both values with a land-rent basic income.”

Finns May Get Paid for Being Finns
by   /  Nov 3, 2015

“Finland could become the first country to introduce a universal basic income. An official at the Finnish Social Insurance Institution, known as KELA, said last week that each Finn could receive 800 euros ($876) a month, tax free, that would replace existing benefits. Full implementation would be preceded by a pilot stage, during which the basic income payout would be 550 euros and some benefits would remain. KELA will present a proposal by November 2016, but for now the idea sounds unrealistic. Finland has one of the European Union’s shakier economies. It has been in recession almost continually since mid-2012 and lacks growth opportunities. The traditionally strong pulp and paper industry is in decline and the tech sector hasn’t lived up to expectations after Nokia lost its place as the mobile-phone market leader. Giving 800 euros a month to every Finn (the population is 5.4 million) would cost 52.2 billion euros a year, and the government projects revenue of 49.1 billion euros for 2016.

Even wealthier Switzerland, which will hold a referendum on a basic income program next year, is unlikely to adopt the idea because of the expense. The proposal to pay each citizen about $2,500 a month would cost about $210 billion a year, or 30 percent of gross domestic product. The Swiss federal government and the parliament have called on citizens to reject it. According to a recent poll, 49 percent of the voters support a universal basic income, but to achieve a majority, the allowance would have to be smaller than proposed. Finland, however, may go through with its plan, perhaps moving ahead of the the Netherlands, where universal income pilot projects will begin next year in Utrecht and possibly in several other cities. The reason for the project’s good prospects in Finland: a political consensus that it is necessary. Earlier this year, Helmuth Cremer of the Toulouse School of Economics in France and Kerstin Roeder of the University of Augsburg in Germany showed that modern democracies are far more likely to adopt a means-tested social security system than a universal basic income. Giving away taxpayers’ money to people whether they work or not is not a popular notion.

The Finns are different. In a recent poll commissioned by KELA, 69 percent said that they would support a basic income plan and that about 1,000 euros a month would be the appropriate amount. There is broad support for the idea across political parties and Prime Minister Juha Sipila favors the idea as a way to simplify the welfare system. The poll showed there was especially high backing for a basic income implemented as a negative income tax. Such an arrangement, which was initially proposed by Milton Friedman and Robert Lampman, would provide payments from the state that would increase in inverse proportion to income.

U.S. experiments in the 1960s showed that a negative tax wouldn’t work “as long as the median income remains within striking distance of the poverty line.” In Finland, the median income is about 3,000 euros a month, far more than KELA’s 800 euro target. But it also is a country where some people pay more than 50 percent tax on incomes of 70,000 euros a year, and there may be a greater acceptance of further redistribution, especially if it means more security. A jump in the unemployment rate to 11 percent earlier this year (it is 8.4 percent now) raised alarm in Finland, possibly making a basic income even more appealing. One draw is that giving all citizens the same benefits would remove the stigma attached to joblessness.

Many experiments have shown that people provided with a basic income don’t lead idle lives. A study conducted in Uganda indicated  that people given such assistance invest in their personal development and end up in more qualified positions, working longer hours and earning more than those who don’t have a safety net. In wealthier countries, people slightly reduce the amount of time they spend at work. The extra time is often spent with children, on personal development or healthy activities. There probably isn’t much danger that Finns will stop working if they get a basic income. The bigger risk is that the government won’t be able to pay for it.”

Avoin kukkaro ja kolikoita.Basic income could amount to about 800 euros a month for all citizens, one proposal says


Why Finland is able to implement the basic income experiment
by Roope Mokka / December 8, 2015

“In the last couple of days BBC, Forbes, Independent, Mashable, Telegraph, Time and Quartz among other media outlets have have written about Finland’s experiment with basic income on a national level. However, none of the articles uncover the reason why Finland can pull off such ambitious policies in an age where so many government are left powerless with even smallest of changes in the way society works. The bigger change is buried under the stream of international news regarding the world’s largest basic income trial. With a closer look, one can see that basic income is only a tip of the iceberg. During the past year, Finland has explored possibilities on how to reform some of its policy making functions with and idea to move from speculative to evidence-based and experimental.

President Risto Ryto was Finland's great inter-war economist. He was unfairly sentenced to hard labour as a war criminal even though the Bank of England tried to save himPresident Risto Ryti was Finland’s great inter-war economist. He was unfairly sentenced to hard labour as a war criminal even though the Bank of England tried to save him

Enter experimental politics
So how did Finland become the first country in the world to experiment basic income in a large scale? Behind the basic income experiment is a longer continuum of Finland wanting to turn national governance agile and human-centric. In the Spring of 2015 Demos Helsinki, a Nordic think tank, together with Aalto University, was leading a strategic research and design project for the Prime Minister’s Office. As a result of the project, Demos Helsinki proposed a new, quick-to-implement model for including experiments and behavioural approaches into Finnish policy design. The experimentation model and short introduction to it has been translated into English and can be found here.

“They’ve been pioneering a form of deciding upon public policy where people actually think through the problems at issue, think about them, consider solutions, test a few of them, then implement the best.” Forbes DEC 8, 2015

Would Finland succeed in integrating experiments to its governance, this would present a landmark event in history of policy making. Instead of speculating on the impact of proposed policies – such as basic income and environmental policies – Finland will now experiment, measure and scale. “It’s bizarre that the rest of the society works with testing, prototyping and then scaling, but not governance. It makes politics very theoretical, slow and to rely on guesses as opposed evidence,” explains researcher Mikko Annala of Demos Helsinki. He was part of the team that designed of the experimentation model. “There’s a lot going on in government innovation right now, with initiatives such as the ‘Nudge unit’ in UK and the Mindlab in Denmark, but we wanted to take this a step further, with large experiments and scaling up to the policy level,” Annala explains. “What the typical government innovations units lack is a feedback loop to policy. That is different with the Design for Government initiative. Now the experiments are designed to scale from the start.”

malli1The process for experiment (Design for Government: Human-centric governance through experiments Demos Helsinki 2015)

Finland is introducing experimentation to politics on both national and city level
Finland is taking many steps in order to become the first truly experimental nation in the world.

  • Firstly, ministries and municipalities are picking experimental methods. For example, there are over 100 mobility experiments being planned and executed, many of them under the administration ministry of traffic and communications, which plans to turn Finland into a one giant Mobility Laboratory.
  • Secondly, the Prime Minister’s Office is currently investigating how to transform funding so that it can better support different experiments. This investigation is also undertaken by Demos Helsinki.
  • Thirdly, Finland is creating new platforms for communicating about experiments: sharing information, know-how and related practices.

Also as a first step the Prime Minister’s Office is setting up the an experimentation office to oversee the experiments and scaling.”


The History of People’s QE – Neither Right nor Left, Just the Way Forward
by Frank Van Lerven / December 2, 2015

“Jeremy Corbyn’s proposal for ‘People’s Quantitative Easing’ has helped get the debate on money creation into the mainstream. On the one hand, it is a breath of fresh air to see well-known politicians propose reforms that Positive Money has been advocating for the last five years. On the other, it is frustrating because a robust concept that can be apolitical has been politicised. Indeed, People’s QE types of proposals are neither right nor left, but simply the way forward. Those familiar with monetary policy and economics in general, will know that there are a number of alternative proposals to conventional QE. The one thing these proposals have in common is that central bank money should be created and spent into the real economy, rather than being injected into financial markets. The various proposals for this form of monetary financing (where the state proactively creates money) have been referred to as QE for People, Overt Monetary Financing (OMF), Green QE, Helicopter Money, Strategic QE, and Sovereign Money Creation. The point being that there is a long history to central banks creating money for productive spending – the idea did not begin nor end with Jeremy Corbyn or Richard Murphy. Indeed, throughout history many states have successfully used their money creating powers to grow their economies (without triggering hyperinflation).

A full-throttle discourse on the subject, however, did not commence until the 1930s. As a response to the Great Recession, a number of economists suggested that central bank money creation be used to stimulate aggregate demand and increase spending. Far from being socialist radicals, these ideas actually originated with economists that included the likes of Irving Fisher, Jacob Viner, and Henry Simmons, some of the fathers of so called ‘free-fundamentalism’. Indeed, the idea was later notoriously brought to the mainstream by the infamous free-market fundamentalist, Milton Friedman. The idea however, is supported by a number of economists associated with the political left as well. Most pertinently, John Maynard Keynes endorsed the idea as early as 1933. More recently, Ben Bernanke suggested that the Bank of Japan implement a form of monetary financing to thwart the economic stagnation that had been burdening Japan since the beginning of the 1990s. In sum, there is a strong intellectual body of history behind the various alternative proposals for QE. That this body of history is composed by some of most important economists of our time, on both sides of the political spectrum, should show that these types of ideas are credible and merit more consideration. Ultimately, People’s QE types of proposals are nether right nor left, they are simply the way forwards!”

Paul Douglas & Aaron Director (1931)

“It is possible for government to increase the demand for labor without a corresponding contraction of private demand, and that this is particularly the case when fresh monetary purchasing power is created to finance the construction work.”

Source: Douglas, F. P. H., & Director, A. (1931). The Problem of Unemployment. New York: The Macmillan Company

Lauchlin Currie, Harry Dextor White & Paul Ellsworth (1932),

“It is strongly recommended that the Government immediately commence a program of public construction on a nationwide scale. Such a program would stimulate directly the building and construction industry and those industries engaged in the production of raw materials and tools, and indirectly a large number of other lines of enterprise, through the expenditure of the earnings of the reemployed. The revival of these industries would involve a further, secondary increase in employment, which in turn would stimulate recovery in other lines in ever widening circles. As employment in industry at large increased, a gradual reduction in government expenditure on construction would be called for, and would permit the return of men engaged on such work to their ordinary occupations. This program should be financed, not by taxation, which serves principally merely to divert expenditure from one channel to another, but by an issue of bonds. It would probably depress the bond market unless the Federal Reserve Banks or member banks come to its support, as they did during the war, by purchasing a large portion of the government issues. Indeed, such action by the Federal Reserve Banks will be essential to the success of the plan herein outlined; otherwise a large bond flotation will heighten the long term borrowing rate and discourage new undertakings on the part of private corporations and municipalities.”

Source: Cited in Laidler, D. E., & Sandilands, R. J. (2002). An early Harvard memorandum on anti-depression policies: an introductory note. History of Political Economy, 34(3), 515-532.

John Maynard Keynes (1933)

“If the Treasury were to fill old bottles with bank notes, bury them at suitable depths in disused coalmines…and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again…there need be no more unemployment and…the real income of the community…would probably become a good deal greater than it actually is.”

Source: Keynes, J. M. (1933). An Open Letter to President Roosevelt. New York Times.

Jacob Viner (1933)

“Assuming for the moment that a deliberate policy of inflation should be adopted, the simplest and least objectionable procedure would be for the federal government to increase its expenditures or to decrease its taxes, and to finance the resultant excess of expenditures over tax revenues either by the issue of legal tender greenbacks or by borrowing from the banks.”

Source: Viner, J. (1933). Balanced Deflation, Inflation, or More Depression

Henry Simons (1936)

“The powers of the government to inject purchasing power through expenditure and to withdraw it through taxation—i.e., the powers of expanding and contracting issues of actual currency and other obligations more or less serviceable as money—are surely adequate to price-level control.”

Source: Simons, H. C. (1936). Rules versus authorities in monetary policy. The Journal of Political Economy, 44(1), 1-30.

Mariner Eccles (1942) Chairman of the FED

If the market situation happens to be unfavorable on any given day when a financing operation is up … the Federal Reserve System should be in a position where it can take care of it by a direct purchase from the Treasury of an issue of securities.”

Source: Cited in Garbade, Kenneth. “Direct purchases of US Treasury securities by Federal Reserve banks.” FRB of New York Staff Report 684 (2014).

Abba Lerner (1943)

“The government can print the money to meet its interest and other obligations, and the only effect is that the public holds government currency instead of government bonds, and the government is saved the trouble of making interest payments. If the public spends, this will increase the rate of total spending so that it will not be necessary for the government to borrow… and if the rate of spending becomes too great, then is the time to tax to prevent inflation.”

Source: Lerner, A. P. (1943). Functional finance and the federal debt. Social research, 38-51.

Milton Friedman (1948)

“Under the proposal, government expenditures would be financed entirely by either tax revenues or the creation of money, that is, the issue of non-interest-bearing securities. Government would not issue interest-bearing securities to the public; the Federal Reserve System would not operate in the open market. This restriction of the sources of government funds seems reasonable for peacetime. The chief valid ground for paying interest to the public on government debt is to offset the inflationary pressure of abnormally high government expenditures when, for one reason or another, it is not feasible or desirable to levy sufficient taxes to do so … It seems inapplicable in peacetime, especially if, as suggested, the volume of government expenditures on goods and services is kept relatively stable. Another reason sometimes given for issuing interest-bearing securities is that in a period of unemployment it is less deflationary to issue securities than to levy taxes. This is true. But it is still less deflationary to issue money. Deficits or surpluses in the government budget would be reflected dollar for dollar in changes in the quantity of money; and, conversely, the quantity of money would change only as a consequence of deficits or surpluses. A deficit means an increase in the quantity of money; a surplus, a decrease. Deficits or surpluses themselves become automatic consequences of changes in the level of business activity. When national money income is high, tax receipts will be large and transfer payments small; so a surplus will tend to be created, and the higher the level of income, the larger the surplus. This extraction of funds from the current income stream makes aggregate demand lower than it otherwise would be and reduces the volume of money, thereby tending to offset the factors making for a further increase in income. When national money income is low, tax receipts will be small and transfer payments large, so a deficit will tend to be created, and the lower the level of income, the larger the deficit.”

Source: Friedman, M. (1948). A monetary and fiscal framework for economic stability. The American Economic Review, 38(3), 245-264.

Gottfried Harbler (1952)

“The importance of the wealth-saving relation goes beyond the case usually designated by the Pigou effect, viz., beyond the effect of an increase in the real value of cash balances and government bonds due to falling prices. Suppose the quantity of money is increased by tax reduction or government transfer payments, government expenditures remaining unchanged and the resulting deficit being financed by borrowing from the central bank or simply printing money…consumption and investment expenditure will increase when the quantity of money grows. I find it difficult to believe that this might not be so.” 

Source: Haberler, G.. (1952). The Pigou Effect Once More. Journal of Political Economy, 60(3), 240–246. Retrieved from http://www.jstor.org/stable/1826454

90pc of all money in circulation in Switzerland is “electronic” money


Switzerland to vote on banning banks from creating money
by   /  24 Dec 2015

Switzerland will hold a referendum to decide whether to ban commercial banks from creating money. The Swiss federal government confirmed on Thursday that it would hold the plebiscite, after more than 110,000 people signed a petition calling for the central bank to be given sole power to create money in the financial system. The campaign – led by the Swiss Sovereign Money movement and known as the Vollgeld initiative – is designed to limit financial speculation by requiring private banks to hold 100pc reserves against their deposits. “Banks won’t be able to create money for themselves any more, they’ll only be able to lend money that they have from savers or other banks,” said the campaign group.

The Swiss National Bank in Berne, Switzerland
The Swiss National Bank was established with money creating powers in 1891

Under Switzerland’s direct democracy, a referendum can be held if a motion gains 100,000 signatures within 18 months of launching. If successful, the sovereign money bill would give the Swiss National Bank a monopoly on physical and electronic money creation, “while the decision concerning how new money is introduced into the economy would reside with the government,” says Vollgeld. The idea of limiting all money creation to central banks was first touted in the 1930s and supported by renowned US economist Irving Fischer as a way of preventing asset bubbles and curbing reckless lending. In modern market economies, central banks control the creation of banknotes and coins but not the creation of all money, which occurs when a commercial bank offers a line of credit. Central banks aim to influence the money supply with monetary policy and regulatory tools. The SNB was established in 1891, with exclusive power to mint coins and issue Swiss banknotes. But over 90pc of money in circulation in Switzerland now exists in the form “electronic” cash created by private banks, rather than the central bank.”



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