Steve Baker & Mark Carney

Steve Baker & Mark Carney

After Mark Carney’s 3rd Reith lecture of 2020, Steve Baker  asked:  “So there is such a thing as a ‘free lunch’?”  Carney was not given space to answer, for Anita Anand spoke over him, asked Steve Baker to repeat his point and then moved on to another questioner. 

I am sure Steve Baker knows this perfectly well. But, no; there is no such thing as a ‘free lunch’, nor a ‘magic money tree’. Writing new money into the British money supply will cause inflation in the long run, unless it is written out again at some stage (ideally before the inflation is noticeable). 

It is better that the ability to turn credit into pounds sterling lies with the Central Bank rather than the government. Government operates in the short term and is highly sensitive to the public clamour. It is too tempting for the executive to buy an election and create problems for the future. 

The Bank of England moves in (deliberately?) mysterious ways. But it is answerable to Parliament and is given the task of maintaining inflation at 2%. If it fails, its governor can be reprimanded or removed, or the entire Bank liquidated. 

A crisis like the COVID-19 pandemic is exactly the sort of crisis that justifies Quantitative Easing. If each citizen spent 1% of their total cash in buying a government bond, Steve Baker would not object. The effect is the same as 1% inflation, except that there might be some who neglected to buy the bond, but furtively pocketed the money. QE is fairer, as it hits all equally. Surely no-one objects to having 1% of their cash wealth taken (albeit without their consent) to support furlough, buy masks, build hospitals, etc. If any object, they should consider living elsewhere. 

The unfairness of QE is that it taxes (fairly) only cash; while land, houses, jewels, old-masters, etc are exempt. That is why we still need Death Duties and a Wealth tax.  I do not think this is what Steve Baker is clamouring for. But perhaps I am wrong.

One of the greatest threats to democracy in Britain is that few people understand money. The ones that do understand it own property, grow rich, and smile.