Probably the best advice I’ve ever seen is in one of that marvellous series of how to do stuff books called ‘Golf for Dummies’. The sage words (paraphrased by me as I can’t remember them exactly) are:
“When things go wrong with your golf game you must remember one important thing: ‘it is never, ever your fault.’”
Then followed by elite examples of Greg Norman blaming a worm cast for a poor drive and Jack Nicklaus expressing fury that the airborne pollen caused his ball to slow down, veer to the left and into a bunker. If you can master this skill your golfing game will forevermore be a pleasant affair with all errors firmly placed at the door of external interference.
It seems that Jeremy Corbyn has taken a leaf out of this book in the sense that he has managed to engender absolute belief in a similarly unlikely yet extremely comforting fantasy. Apparently it is no longer necessary to spend within the limits of our earnings as we will simply print more money and have everything we want. It’s an idea that is gaining traction amongst those who aren’t into critical evaluation and it is also difficult to oppose with a straight face by a government that did exactly the same thing.
If that’s ok can they print me a couple of hundred thousand a year as well, after all we all know that printing cost per item goes down with increased quantity?
Whist there has been critique from most quarters, except perhaps from 41 (only 41 socialist economists?) from a profession that is rarely correct about anything and can offer as many divergent opinions on the same thing as multiple weather apps there has been no clear explanation as to why this is wrong.
So I’ll provide one.
Quantative easing, Peoples quantative easing, printing money and monopoly money are all the same thing and predicted benefits from printing it when you just want some more stem from a fundamental lack of understanding about what money really is.
Money has no value it is representative of value.
Before I elaborate on this it’s important to emphasise that the consistent thread in every society that has ever existed is the concept of value. Valuable things have been swapped, bartered and used as currency by everyone. Some things have an inherent value, such as a chicken that you can eat, and a value that can be represented by something else, other things have a spurious value, such as gold, that also can be represented by something else. Those items with an inherent value will normally keep that value because the chicken will always be a meal and because of that its representative value is also unlikely to change by much. Gold on the other hand has a value only maintained by that spurious and bizarre notion of confidence that, as we all know can collapse for no real reason and often with little encouragement. Were a substantial source of gold to appear the value of all gold would fall through the floor.
Money also falls into this category as it has no inherent value at all it is just metal and paper. Just like the gold comet that crashes to earth thereby substantially increasing the supply of this material, artificially increasing the supply of money achieves pretty much the same thing.
At any one time there is an amount of value that exists in an economy which is represented by an amount of money. This value, of course, can change for a variety of reasons but it is always matched by the money. The value of the money in existence will rise or fall depending upon changes in total value. Money value generally is, and should be, driven by real value.
The example everyone knows about is housing, as there is insufficient housing available its value increases to meet the amount of money available to buy property.
Broadly speaking value and money supply automatically match, though in a complex economy things are always moving at different rates and for different reasons. An artificial increase in money supply alone will not increase value but instead each monetary unit will have to represent a slightly smaller amount of that existing value than it did before. This means that every pound will buy a little bit less, meaning that you need more of it to get the same value so a fundamental principle to avoid this from happening is to increase value and attract more money from sources outside one’s own economic framework.
We know this phenomenon as inflation, which is low at the moment, but one feature of such a stimulation to it is that it starts the snowball rolling down the hill and by the time anyone realises that it has happened it is often too late and we have to wait until its size and speed becomes unsustainable and it crashes. Unlike a snowball, that doesn’t matter too much, when economies crash the world, for most people, becomes a very harsh place indeed. Once inflation takes off financial disaster and possibly political extremism is not too far behind. We’ve seen this before?
The other peculiar aspect of ‘Corbynomics’ is that it is always the less well off who suffer most in an inflationary spiral. Those on fixed incomes, the low paid, the disabled and public services so the real question for Jeremy Corbyn might be:
Why do you want to embark upon a path that will inevitably hurt the very people you want to protect?
Of course, all answers will, in some way be met by an assurance that it would never come to that, ‘we have it under control’ it won’t be inflationary and so on but that is factually incorrect, it is inflationary and their wishful, or perhaps, reckless thinking takes no account of unrelated financial disasters lurking around the corner. Just like the incompetent Gordon Brown who relied upon growth and prosperity continuing in the same vein Mr. Corbyn and his crew will also pretend that no outside influences could possibly derail their delusion of economic paradise.
This quote isn’t in ‘Golf for Dummies’ but it should be in ‘Economics for Dummies’:
If it looks too good to be true it almost certainly is.