It’s nearly eight years since the 2008 financial crisis ignited with the collapse of Lehman Brothers.
Over here in the UK, it’s nearly nine years since we experienced the shocking sight of a genuine, Mary Poppins-style, queues-on-the-high-street bank run, sparked by the collapse of Northern Rock.
Since then, we’ve seen more radical monetary policy on a global basis than ever before.
Yet growth has been disappointing. Inflation (the stated goal of monetary policy) has remained stubbornly low. Debt is growing, not falling. What’s the solution?
Well, according to the thinkers who got us into this mess in the first place, it’s ever more radical monetary policy…
Printing money is easy – controlling it’s the hard part
Adair Turner, the former head of the Financial Services Authority (the old financial services regulator), has been championing more aggressive monetary policy for a long time.
Since 2008, he says, “massive monetary stimulus has failed to generate adequate demand”.
Therefore, as far as Turner is concerned, we need to do even more. That means “deficit financing” or “helicopter money” or “monetising the deficit” – all jargon terms which simply mean the government prints money to spend on whatever it likes, rather than borrowing the money from investors.
Make no bones about it, this can be done. It is more than possible. The only real obstacle is political.
But it’s dangerous stuff – which is why we’ve shied away from it so far. If you print too much money, acknowledges Turner, “hyperinflation might be inevitable”. And the risk is that “once the taboo against monetary finance is broken, governments will print money to support favoured political constituencies, or to overstimulate the economy ahead of elections”.
But don’t worry, says Turner. According to Ben Bernanke, the ex-boss of the US Federal Reserve, “this risk could be controlled by giving independent central banks the authority to determine the maximum quantity of monetary finance that was required to meet but not exceed the inflation target. The dangers of too big a stimulus can, in principle, be contained.”
So the real question, says Turner, is can we “design a regime that will guard against future excess, and that households, companies and financial markets believe will do so”?
Turner accepts that the answer may be no (though he clearly believes it can be done). Yet if the answer is no, “we may be stuck for many more years facing low growth, inflation below target, and rising debt levels”.
Trust is a commodity in short supply right now
I wrote recently about how “Brexit” and the rise of Donald Trump and the general demand for “change” around the world was a direct result of the 2008 financial crisis, and the fact that it had shaken people’s faith in the way that the world was supposed to work.
I think Turner’s piece goes to the heart of this problem. Turner’s essential point is “trust us technocrats, we know what we’re doing”. But it’s patently obvious that they don’t. The idea that Ben Bernanke could work out exactly how much money should be printed at any given moment, when he couldn’t even see the sub-prime crisis blowing up under his nose, is ridiculous.
Raghuram Rajan is the governor of the Reserve Bank of India. To my knowledge, he is literally the only working central bank boss to have publicly and accurately warned of the global financial crisis before it happened. Given his record, I’m more inclined to listen to him.
His concern – cited in Turner’s article – is that taking an action as radical as introducing helicopter money might panic people into hoarding any printed money. It’s a variation on the “low interest rates are the problem, not the solution” argument.
Yet no one’s listening to Rajan. He doesn’t peddle the establishment line. So he’s sidelined in the arguments.
And I think this is the fundamental issue. The people and ideas at the top of our society cheer-led us into the financial crisis of 2008. They dismissed anyone who thought that the global economy was on an unsustainable path.
They were wrong. We experienced a near-financial apocalypse. And that’s not me saying that. The very people who dismissed the pre-2008 warnings were the ones screaming most loudly for bailouts, money printing, and shrieking about the cash machines running out of money.
So under the guidance of these individuals and, more importantly, their ideas, we ran the global economy off a cliff. You’d think that a disaster on that scale might have some bearing on their suitability as leaders, or at least on the quality of their thought processes.
Yet today, those same people and ideas are still in charge, both in government and in the high-level debate. The same politicians, central bankers, academics, think tanks, and columnists are still sneering derisively at alternative views and insisting that they know best, even although history – incredibly recent history at that – demonstrates that they patently don’t.
That’s what I think lies at the heart of this demand for change, rising nationalism, discontent with the status quo, the restarting of history – whatever you want to call it.
People don’t know what the world should look like. But they do know that the people in charge – the “elites”, for want of a better word – don’t know what they’re doing and don’t deserve to be there.
They don’t know what to replace the current regime with, and many of the ideas they have are plain wrong or dangerous. Some blame immigrants for everything. Some blame capitalism, and see this as the opportunity to turn developed nations into Venezuela. And there are just plain nasty individuals willing to use this uncertainty and upheaval to further their own personal ambitions.
There are no easy answers. But that doesn’t mean you can dismiss this disquiet and ride roughshod over anyone who expresses concern about the status quo.
A bit more humility from the people who were in charge when things went horribly wrong might help. An acceptance that they made mistakes, and that many of the complaints from the hoi polloi are justified. Some indication that lessons have been learned and that it might be a good idea to do certain things differently in future.
But unfortunately, people generally take the path of least resistance. Printing a whole load of money in the hope of papering over the cracks is a lot easier than planning for genuine change.
Watch the skies for the money ‘copters.