People's Quantitative Easing facts for kids

People's Quantitative Easing (PQE) is an economic idea suggested by Jeremy Corbyn in 2015. It involves the Bank of England, which is the UK's central bank, creating new money. This money would then be used to pay for important government projects, like building homes and improving public transport. The plan was to do this through a special "National Investment Bank."

People's Quantitative Easing Explained

What is PQE?

People's Quantitative Easing, or PQE, is a plan where the Bank of England would create new money. This money would not go directly to people. Instead, it would be used to fund big projects across the country. The goal is to help the UK economy grow stronger.

How PQE Would Work

Under this idea, the Bank of England would buy special bonds from a new "National Investment Bank." This National Investment Bank would then use the money to invest in things like:

• Building new homes, especially affordable ones.
• Improving public transport, such as trains and buses.
• Helping the UK become a leader in new technologies and skilled jobs.

The aim is to boost the economy and create jobs. It also hopes to lower future costs, like housing benefits, by making homes more affordable.

Why Was PQE Proposed?

The idea for PQE came from economist Richard Murphy. He suggested it as a plan for a time when the economy might be struggling. This would be if there was:

• Slow economic growth.
• Low inflation (prices not rising much).
• Low interest rates (cost of borrowing money is cheap).
• High unemployment (many people without jobs).
• Low wages (people not earning much).

If the economy was already doing well, with lots of jobs and good growth, then PQE would not be needed. The government would have enough money from taxes to pay for investments.

What People Thought About PQE

The idea of People's Quantitative Easing caused a lot of discussion. Some people supported it, while others had concerns.

Concerns About PQE

Some politicians and economists worried about PQE. They said it could be "economically illiterate," meaning it might not work well for the economy. Here are some of their main concerns:

• Inflation risk: Creating new money could make prices go up too quickly. This is called inflation. If inflation gets too high, things become very expensive for everyone.
• Investment risk: Some thought it could make it riskier for other countries to invest in the UK.
• Legal issues: There were worries it might go against European Union rules. The Treaty of Lisbon has a rule (Article 123) that stops central banks from printing money to directly fund government spending. This could lead to a legal fight with the European Court of Justice.
• Government spending: Some critics worried that governments might use this money for projects that are not well-planned. They feared it could lead to too much spending before elections, followed by difficult times afterwards.
• Impact on the poor: High inflation and economic uncertainty often affect people with lower incomes the most.

Support for PQE

Despite the concerns, some economists and newspapers supported the idea of PQE, at least in certain situations.

• Economist Robert Skidelsky gave some support to the plan.
• Newspapers like The Guardian and the Financial Times published articles that saw good points in the idea.
• The Independent newspaper suggested that a small amount of PQE could help create jobs and increase inflation to a healthy level. This could also help reduce the amount of debt built up since the financial crisis of 2007–08.
• Some economists from big banks, like HSBC and Standard Life, said that policies like PQE might be needed if the economy faced another downturn, even after using traditional quantitative easing (QE).
• Well-known economists Paul Krugman and Joseph Stiglitz also sent messages of support for Jeremy Corbyn's economic ideas in general.

Later Discussions

Later, when Jeremy Corbyn formed an Economic Advisory Committee, some experts thought the idea of PQE might change. They believed the committee would support the government borrowing more money for infrastructure projects (like roads and bridges) because interest rates were low. However, they might not support the original PQE plan. This was because they feared it could harm the Bank of England's ability to control inflation. They thought PQE might only be used as a "rainy-day" tool if the economy was in very serious trouble.

More recently, in 2019, some people said that People's Quantitative Easing was similar to ideas in Modern Monetary Theory. This theory suggests that countries that control their own currency can spend more freely without worrying about debt, as long as inflation is under control.

See also