Anthony Hilton: Central bank money-printing is a lifeline that must be grasped

Among the many things Labour leader Jeremy Corbyn was vilified for in the days after his election was his idea of “People’s Quantitative Easing” — which, stripped of its jargon, was the suggestion the Bank of England could be directed to print money that could be used to finance the building of infrastructure assets.

The UK badly needs these but cannot afford them under the current economic orthodoxy.

This delighted the less economically literate section of Tory MPs, who seized on it as a classic example of why politicians of the Left should never be put in charge of the nation’s finances.

The critics were presumably ignorant of the fact that the idea there may be times when the Government should print money it would not otherwise have and then spend it was first mooted in 1960.

The author was none other than Milton Friedman, the intellectual giant behind Chicago School monetarism, and through that the father figure of Right-wing free-market economics.

Not many people know that — or if they do, they like to pretend they don’t because it does not fit with the prevailing intellectual mood. Conventional wisdom holds that printing money will turn the country overnight into another Zimbabwe. No ifs, no buts — it destroys the value of a currency through inflation, and when faith in a currency goes, the financial system will collapse.

This is an entrenched belief in the financial community, as was brought home recently at a conference of Europe’s fund managers where Sushil Wadhwani, the hedge fund manager and former member of the Bank of England’s monetary policy committee, asked the audience whether they would approve of such a policy were there to be a sharp contraction in the economy.

Wadhwani’s thesis was that another financial disaster is highly likely, given the way the world is headed, but that central banks had run out of options on how to deal with the storm when it breaks.

Their two weapons, low interest rates and quantitative easing , have lost their effectiveness — if they ever had much — because interest rates have already been cut close to zero, and QE has seen central banks buy up most of the easily available supply bonds.

According to Wadhwani, the only anti-disaster policy left for the central banks would be to print money on a heroic scale, which government would then spend or give to the public to spend.

Hopefully, this would stimulate enough activity in the economy to stave off another great recession.

But the fund managers were unconvinced, and said so. They thought the policy either would not work or was far too dangerous to use.

The implication was that they would rather endure another great recession — the cure, they thought, would be worse than the disease.

All the more interesting therefore that Lord Turner, the last chairman of the Financial Services Authority, candidate for Governor of the Bank of England, architect of the auto-enrolled personal pension plan being rolled out across the country, and a one-time director general of the CBI, should today choose to enter the fray.

In a paper he is presenting at the International Monetary Fund annual research conference in Washington, and therefore to one of the most intellectually high-powered audiences in the world, he argues powerfully that there are times when printing money is the only option available to the authorities, that if used it will always deliver results in terms of stimulating demand, and that it is perfectly possible to apply it in a controlled way that removes the risk of dangerously high inflation.

In Turner’s view, conventional wisdom is quite wrong to close its mind to monetary finance — as printing money is called at these exalted levels — because the dangers inherent in this policy are not economic. Instead, they are political.