Over at Forbes, more on why the ECB won't do QE despite Spanish inflation having turned negative:
Spain is in a mess. Over a quarter of its adult workforce is unemployed, and according to CIB Natixis it has lost 25% of its production, even more than Greece. Spain’s inflation rate has been falling steadily and has now turned negative: the most recent retail sales figures show a fall of 0.2%. Various people anticipate ECB easing monetary policy because of the growing threat of deflation in Spain.
But this is to misunderstand the role of monetary policy in a currency union. The ECB sets monetary policy for the union as a single unit, not for its individual components. Deflation in Spain is a driver of ECB decisions only to the extent that it depresses Euro zone CPI. And I’m sorry if this sounds brutal, but Spanish unemployment is of no consequence, since the ECB does not have a mandate to target unemployment even at the Euro zone level, let alone in an individual country. The ECB can no more set policy to tackle deflation or unemployment in Spain than it can set policy to meet the desire of German savers for better returns. Its mandate is to maintain inflation close to 2% across the Euro zone economy AS A WHOLE.....
A version of this post appeared on Pieria in December 2013.
In my post “The desert of plenty”, I described a world in which goods and services are so cheap to
produce that less and less capital is required for investment , and so easy to
produce that less and less labour is required to produce them. Prices therefore
go into freefall and there is a glut of both capital and labour. This is
There are two kinds of deflation. There is the “bad” kind,
where asset prices go into a tailspin and banks and businesses fail in droves,
bankrupting households and governments and resulting in massive unemployment,
poverty and social collapse. America experienced this in the Great
Depression and narrowly avoided it in the Great Recession. More recently, at least one European country has felt the effects of this catastrophe.
But there is also another kind. This is where falling costs
and increasing efficiency of production create a glut of consumer goods and
services. In other words, supp…
Last night, the Resolution Foundation hosted a debate to launch my book, "The Case for People's Quantitative Easing". A great panel consisting of Jagjit Chadha, Director of NIESR; Fran Boait, Executive Director of Positive Money; and James Smith, Research Director of the Resolution Foundation, debated my ideas with immense verve, ably moderated by Torsten Bell, Chief Executive of the Resolution Foundation. You can watch the debate here.
In 2008, QE did a great job of supporting asset prices and preventing the disastrous deflationary spiral of the 1930s. But since then, enormous quantities of asset purchases by central banks around the world have proved unable to raise aggregate demand and kickstart growth.
Although central banks didn't do a bad job in the last recession, many of the tools they used won't work in the next one, not least because the legacy of the tools themselves has not yet dissipated. Interest rates are on the floor, central bank balance sheets …
It's Saturday afternoon, and I have just returned from singing Evensong at Rochester Cathedral. The first reading was the dreadful story of Laban's deceitful behaviour towards Jacob. Laban made Jacob work for seven years in return for a promise of his daughter Rachel's hand in marriage. But at the end of the seven years, Laban palmed Jacob off with his other daughter instead, then made him work for another seven years to claim the hand of the woman he loved. This story is horrible not just because of Laban's underhand behaviour, nor even because Laban treated his daughters as his property, but because of the damage it did to Jacob's family. The rivalry between Rachel and her sister set up deep divisions that led to attempted murder and the disintegration of their family.
Writing in Unherd, Giles Fraser complains about disintegration of family. "Our social care crisis is a crisis of family and community life," he says. And he blames it on what he calls the…