Submitted by Pieter Cleppe,

A number of economists propose in the FT to implement what has been dubbed "QE for the people".



They start off quite well, noting:

"The evidence suggests that conventional QE is an unreliable tool for boosting GDP or employment. Bank of England research shows that it benefits the well-off, who gain from increasing asset prices, much more than the poorest."

As is often the case with these things, they go on to propose something even worse than what's already being implemented:

"Rather than being injected into the financial markets, the new money created by eurozone central banks could be used to finance government spending"

Government spending already benefits from QE at the moment. Since Draghi's announcement, Italian and German borrowing costs have dropped. And then we haven't even discussed all the other ways the ECB has found to prop up sovereigns, such as the cheap LTRO loans to banks, who channeled the money through to governments, especially in Spain and Italy. This is so well-known that it was called the "Sarkozy trade" - a term adopted by markets after the French president suggested that governments urge banks flush with ECB cash to buy their bonds. So why try more of the same?



Those calling for a "political Europe" should take notice that large-scale transfers have already been implemented within the Eurozone since 2010, through the EFSF, ESM and primarily (German economist Hans-Werner Sinn estimates to the tune of 75%) through the ECB. When one receives a loan with an interest rate which is lower than the market level, one receives a gift, in economic terms.



The economists argue that "mixing monetary and fiscal policy" isn't a problem because "traditional monetary policy no longer works".



They must have missed the alternative of Austrian economics. Post-World War II Germany and its relatively strict hard money policies can perhaps be instructive for a model that has been tested. Japan has been trying excessively loose Keynesian monetary policies after its bust around 1990, with negative results. But the authors seem to prefer to apply the principle "When in trouble, double".



A particular problem with financing governments through the printing press is that Parliaments are being bypassed, exactly the reason why politicians prefer to let Mario Draghi do the brunt of the dirty work in the euro crisis.



I hope it doesn't come as a shock to anyone, but my suggestion is the following: governments should be funded by taxes alone, democratically controlled through Parliaments. Ideally these taxes should consist in one invoice per citizen, detailing the services received. Perhaps socialists may want to add a “solidarity” invoice to rich people, raising funds which can be transferred on in a transparent way to those perceived to be in need. Clearly this system is way too transparent for the sake of any political purpose and would mean the end of a whole industry of tax advisors, but perhaps it may one day serve as a model for any future new country.



An alternative put forward by the authors which goes to the heart of their "QE for the people" - proposal is the following:

"Each eurozone citizen could be given €175 per month, for 19 months, which they could use to pay down existing debts or spend as they please. By directly boosting spending and employment, either approach would be far more effective than the ECB’s plans for conventional QE"