UK: Economists Demand Cash Transfers to Stimulate Growth

Last week, a group of 35 economists signed a letter demanding that the Treasury and Bank of England consider new policies to stimulate growth, including direct cash transfers to citizens.

On Thursday, August 4, the Bank of England announced that it would cut interest rates for the first time since 2009. This measure is intended to promote spending, and the bank believes that a recession can be averted. Nonetheless, Bank of England Governor Mark Carney warned that an economic slowdown remains inevitable in the wake of Brexit. For those British businesses who are trying to fight through this, they may be looking at ways they can support their business such as looking into merchant accounts from Unicorn Payment to assist with online payments. Anything that can aid in British businesses finding their feet after Brexit is important.

Although many economists expected the bank to make this decision, some lobbied against it — arguing that, after seven years, the lowering of interest rates has proven unsuccessful in boosting the British economy. On August 3, the day before the bank’s decision, The Guardian published a letter signed by 35 economists, directed to Chancellor of the Exchequer Philip Hammond.

The letter called upon the Treasury and Bank to adopt policies that will stimulate spending directly, and it posed several suggestions to this end:

A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects – boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process. Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes. Furthermore, competitive business energy prices for UK companies could also boost production and the economy as a result.

In any of these policy scenarios, new money will be directly introduced into the real economy, stimulating aggregate demand and boosting employment, investment and spending. While it is a job for the Treasury to set up the framework for these policies to be deployed, it would remain a decision for the monetary policy committee as to the timing and size of any future stimulus.

Signatories include BIEN co-founder and co-president Guy Standing, anthropologist David Graeber (a vocal advocate of basic income), Keynes biographer Lord Robert Skidelsky (who has also written in support of basic income), Mark Blyth and Eric Lonergan (who have previously written in support of direct cash transfers), and Steve Keen (who coined the phrase ‘quantitative easing for the people’).

Many of the economists were also signers on a similar letter to European Central Bank (ECB) written last year, which encouraged the ECB to consider policy alternatives to quantitative easing — the policy of printing new money to purchase bonds from financial institutions. This letter had recommended that the ECB use its money to stimulate spending directly, such as by simply giving the money to citizens.

Although Wednesday’s letter to Hammond did not impact British monetary policy (yet), it did generate publicity about the economic benefits of one of the central features of a basic income: the direct transfer of cash to consumers. Subsequent articles in The Guardian, by Larry Elliott and Simon Jenkins, stressed the benefit of cash transfers in boosting spending. (As Jenkins concludes, “There could be a ‘spending Olympics’. There could be vouchers, scrappage schemes, Christmas bonuses and, horror of horrors, cash for the undeserving poor. Why not try it? All else has failed.”)

Similarly, writing in The Independent about the projected effects of Bank of England’s interest rate cut, Ben Chu raises the question “Why doesn’t the Bank just print money and give it to people and firms to spend directly?” Referring to Wednesday’s letter, Chu points out that “a growing number of academic economists are arguing that this would be a more effective, and less financially distortionary, way of stimulating the economy.”

References

“A post-Brexit economic policy reset for the UK is essential“, The Guardian; August 3, 2016.

Larry Elliott, “Cash handouts are best way to boost British growth, say economists“, The Guardian; August 4, 2016.

Simon Jenkins, “Want to avoid recession? Then shower UK households with cash“, The Guardian; August 5, 2016.

Ben Chu, “Interest rate cut: What did the Bank of England announce today and how will it affect you?” The Independent; August 5, 2016.

Photo of Bank of England CC Diliff

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