I was scrolling through my social media feed today, and I came across a post from the hacker-related leftist page Anonymous, which confused me. It contained a British UKIP politician called Godfrey Bloom, on a right wing rant (in the European Parliament), about the problems with fairly conventional economic policy. This particular version of the speech has been seen 34 million times, shared by 794,000 people and ‘liked’ by 224,000. Other copies on YouTube have been seen 50,000 times each. It’s fair to say that this is a video which went viral, and given it’s source, it’s fair to say that it is largely shared by people on the left. It has been a source of ‘education’ to more people on the left than will ever read a good economics book, which is a slight concern.
The situation in the video is nothing new, you might think. UKIP MEPs spend most of their time ranting in Europe, whilst leftists spend a lot of energy decrying various forms of economics (as they should – Pikkety, among others, have conclusively disproved the theory of trickle down economics which rules western democracies). However, it was strange to see the two mix; they are normally on different sides of the argument.
After watching, it became immediately clear that this was a video of an ultra-right wing, extremely muddled speech on economics. It slated the ability for banks to lend money they don’t have in reserve, the control central banks have over the money supply, and even referred to quantitative easing as fraud. How has this speech garnered the support of a multi-million leftist audience?
It might, at first glance, seem socialist to critique a bank’s ability to lend money it doesn’t have. After all, an initial assessment might say that a bank is making money from selling assets that it has no capitalistic ownership of. But this isn’t how banks work; a bank is a unique business that can provide funds and capital to small business as loans, or individuals as mortgages, in order that they don’t have to be homeless/lose money renting/be unable to start their own business. If we were to stop this lending, or reduce it to a level where banks were only able to lend what capital they have in reserve, then we greatly reduce the ability for the poorest – those who don’t have immediate tens of thousands of pounds in the bank – to access the same kind of advantages as the richest, who do have this kind of capital laying about.
Allowing banks to lend money they ‘don’t have’ is a way of allowing access to wealth for those who don’t currently possess it, or aren’t ‘safe bets’ for lending like rich business owners. Yes, bank managers make money from it, but it works. As a leftist you might want to campaign to rearrange the system slightly, perhaps having the government doing the lending directly rather than making money for bankers, but you wouldn’t want to end or greatly reduce this system if equality was a legitimate aim. And even campaigning for the government to run banks themselves is iffy; it basically merges the central and corporate banks into one, which could be unwise as a matter of safety (a central bank can be the fail-safe to bail out poorer citizens who invest in failing private banks, so who bails out the central bank if it fails?)
Secondly, where is the hatred for central banks coming from? Central banks are an often independent, else government run, way to rule how the banks work by changing things like interest rates, in the public’s interest. It’s vital in order to keep employment figures high, for instance, as by changing an interest rate you can increase or decrease the value of the currency, and thus make the small businesses in your country better able to import or export services or goods, or the consumer less or more willing to buy them.
The lack of a central way to do this in the Eurozone, due to the currency being spread around so many countries and thus not being able to change the interest rates relatively to help each country (so the Euro has to have the same value in each country), has been catastrophic. Had Greece or Ireland had this ability to change the domestic currency interest rate to help themselves, we might be looking at a very different and more functioning Europe. Had Spain or other countries had such control, we might not be looking at such a weak and ineffective European parliament, full of dissent and vitriol, and, who knows, we might not have suffered a worried EU-exit vote from the UK. Poor economic planning with the Euro has been a breeding ground for right-wing hatred; they, wrongly, spout anti-government and anti-equality vitriol as the answer.
So to the final subject of this rightist rant on economics: quantitative easing. Quantitative easing isn’t, as many claim, where governments (or central banks, more accurately) simply ‘make’ money. Though this is the understanding from the ranting politician in the video mentioned above – he believes QE to be a process of ‘counterfeiting’ money. This is highly bizarre, even for a right-wing propagandist, given that the central bank control and print the currency anyway. It’s thus only ‘counterfeiting’ as far as Apple is ‘counterfeiting’ by producing more of its own iPads.
To believe QE is counterfeiting, one must have such little understanding of how economics and the financial system works that it is surely untenable to hold any elected office. One must believe that there is a set amount of money in society, which perfectly represents all of the products and services in society, like some medieval bartering system. If that concept were true, the trillions hidden away in tax havens, citizen’s savings accounts and businesses operating accounts would surely account for most of the products and services in the world. Given that there are an infinite number of services we could invent, and thus an infinite of potential ‘value’ which could be created – and the amount of money in society isn’t infinite – then this theory must be outdated or highly mistaken. The amount of money in circulation – whether physical or digital – represents nothing, in particular, other than the amount of money in circulation. That’s it.
QE is nothing more than another way to affect inflation by introducing more money into the economic environment (usually by buying bonds or debts – thus freeing up capital). The difference is that it is rarer than changing an interest rate, but it’s just as vital when interest rates are low (as they are in many countries right now) as it’s not always a great economic idea to go into negative interest rates; especially not in societies where you want to encourage savings as a general matter.
The UK is a great example of somewhere that might want to use QE; there is a growing pension crisis here as the elderly sector grows substantially. To discourage people from saving, and have them charged for doing so (which is what negative interest rates involve – charges rather than interest accruals), focuses on short term economic improvement – and not very hopeful short-term improvement at that, given you’ve tried everything and still had to start punishing people for not spending – rather than long-term prosperity.
What’s more, guess what? If you start charging people for their savings, guess which section of society has the wealth to buy things like property, great works of art and expensive diamonds, in which they can hoard wealth in the meantime without losing money by paying to store it in bank accounts? And which section of society can’t afford such ever-increasing luxury, and will instead lose yet more money by having to put it in accounts, else buy depreciating object for their homes? Yes, I’ll let you work that mystery out. QE isn’t generally helping the rich, it’s helping the poor.
QE has its flaws, as I explained in this article about the problems with the Positive Money ideology; mainly that if you introduce really significant amounts of capital, you can create as much of a problem as you are solving, by reducing the value of the currency (through inflation) in a way which off-sets any value you have added by introducing the extra money. But, so long as it’s done carefully, sparingly and with as much foresight as possible, it can be a vital and useful tool.
It doesn’t say much for politics that we have so few people, as a whole, who understand even the basics of economics – be it the clueless right wing politicians who spout this kind of drivel, or the social media sites who think it represents revolutionary leftist honesty. But this lack of understanding damages the left more than it damages the right. In times of uncertainty, people will flock for the simplest explanations, and economics is not a simple subject. As a result, people hang to tales of viewing economics as a business, and thus opt for the right’s business-like explanations and concerns, rather than the left’s more nuanced and effective understanding.
If it wasn’t bad enough that the mainstream press promotes and supports the ideology of the richest in the society, we now have many on the left holding so little understanding that they are doing their job for them. We have to avoid this mistake, as we can’t afford to send videos which preach this nonsense viral. But we also need to be able to tell the story of how economics actually works in order to convince other voters that we know what we are doing. As a result, we can’t ignore it any more: the left must begin to understand economics better than anything else in the political arena.