The Blurb On The Back:
In the wake of the 2008 financial crisis, central banks created trillions of dollars of new money, and poured it into financial markets. ‘Quantitative Easing’ (QE) was supposed to prevent deflation and restore economic growth.
But the money didn’t go to ordinary people: it went to the rich, who didn’t need it. It went to big corporations and banks – the same banks whose reckless lending caused the crash. This led to a decade of stagnation, not recovery. QE failed.
In this book, Frances Coppola makes the case for a ‘people’s QE’, in which the money goes directly to ordinary people and small businesses. She argues that it is the fairest and most effective way of restoring crisis-hit economies and helping to solve the long-term challenges of ageing populations, automation and climate change.
The Review (Cut For Spoilers):
Frances Coppola is a financial writer and blogger whose book takes the reader through the post 2008 financial crash quantitative easing (QE) programme and why it failed. Using Milton Friedman’s ‘helicopter drop’ proposal, she then sets out the arguments for QE aimed directly at the population. While I’m not convinced by the mechanics and the benefits seem overstated, it sets out some interesting arguments that I’d like to read more about.
This book is particularly strong on setting out the consequences and failures of the QE programme launched by central banks in the wake of the 2008 financial crisis. Coppola makes a convincing case for why it fuelled feelings of resentment on the part of the public and how the unintended consequence of it was to drive up asset prices and make banks and the rich better off, while hurting those already at the bottom of the heap – particularly those who had been caught up in the sub-prime crisis and were now losing their homes. She also does well at setting out the impact on developing countries with currencies pegged to the dollar and those dependent on selling commodities such as oil once the QE taps were switched off. If you’re looking for a good summary of what happened, why and what the outcome was, then I think you can do far worse than this as Coppola writes clearly and in a way that’s easy to follow (which is quite a trick given there’s a lot of theory here).
The central thrust of Coppola’s argument for a people’s QE approach is built upon Milton Friedman’s ‘helicopter drop’ proposal of QE in which a helicopter basically drops dollars into a metropolitan area and the people who collect it are then free to do with the money as they will. Coppola’s argument is a little more refined as she looks at different ways of doing such a drop and directing it to those who need it. I must confess that I did struggle a little with her chapter on what money is (especially base money) and how the 2008 QE programme worked (including what it meant for central bank reserves). I think this is because I don’t come from an economic/financial background and Coppola presumes a little more knowledge from her readers than I had. I was able to follow her arguments on the different mechanisms that could be adopted for a people’s QE such as direct payments to people, debt relief, and government investment and she makes some interesting points about the impact that such mechanisms could have on people’s lives and in turn stimulate the economy.
Coppola tackles head on the common objection to people’s QE that it will lead to hyperinflation, relying heavily on evidence that a Japanese approach did not lead to the same. What comes through is that hyperinflation is not so much of a concern in politically stable countries with sound governments (contrast with Zimbabwe and Venezuela) and I did leave the book sympathetic to her point that central banks focus too narrowly on inflation without thinking through the consequences of the same on those least able to deal with a weak economy.
However, I didn’t agree with Coppola’s criticisms of central bank independence from government as a “sacred cow” because while central banks are overly concerned with inflation and preventing extreme economic cycles, they do take a long term view of the economic and should not be beholden to the whims of increasingly populist politicians. In addition, I thought that some of her suggestions for how to improve the responsiveness of central banks to the needs of ordinary people had their own problems, e.g. the idea of appointing “ordinary” people to central banks suggests that “ordinary people” will be the one who are appointed when in practice, it’s always those with political connections who get the role.
Notwithstanding my criticisms, I did find this a genuinely interesting book and given that QE for the people was a policy favoured by Jeremy Corbyn it’ll be interesting to see whether it’s one that the next Labour leader will be keen to pick up.
Thanks to the Amazon Vine Programme for the review copy of this book.