Radhika Desai has written a piece for the Guardian‘s Comment is Free, asking ‘has quantitative easing had its day?’
Desai, the author of Geopolitical Economy: After US Hegemony, Globalization and Empire (Pluto, forthcoming 2013), argues in the article that QE’s failure to power recovery is clear, but the US and UK remain wedded to the policy in order to stifle debate about fiscal policy.
She notes that both Ben Bernanke, Chairman of the US Federal Reserve, and Mark Carney, governor-elect of the Bank of England, are pursuing QE policies in spite of their uncompromising track-record of failure:
Bernanke and Carey’s new and improved monetary policies are designed to retain QE as the chief policy instrument for engineering recovery despite its failure so far. Given that its most vocal opponents are the economic neanderthals of the US Tea Party right, it is usually assumed that QE is progressive, if not, so far at least, very effective.
In reality, QE has served, first and foremost, to socialise the losses of the financial systems of the two countries at the centre of the financial crisis, the US and the UK. In contrast to the publicly fought over Troubled Asset Relief Program (TARP), QE contributed far more to achieving that objective and did so without the fuss and melodrama of Treasury secretaries going on bended knee before House speakers to beg its passage.
Some find consolation in the thought that at the very least QE prevented the economies of these two countries from falling into outright depression. In reality, two other things accomplished this. First, unlike in the 1930s, the “automatic stabilisers” – government spending and transfers – formed a floor beneath which the economy could not fall. Second, there were mild fiscal stimuli. But their end now threatens to send economic activity south again in both economies.
Desai argues that the fierce advocacy of ‘QE3’ on the parts of both Bernanke and Carney, serves a second interest, as a smoke and mirrors distraction from questions of an alternative:
As Keynes pointed out, under certain conditions (such as those today: rock-bottom interest rates, poor demand outlook, heavily leveraged firms and households) credit easing would amount to little more than “pushing on a string”. So why are Bernanke and Carney seeking to tie recovery even tighter to monetary policy with their innovations in QE precisely when its failure to power recovery is clearer than ever?
It’s because without some action on their part, public discussion is bound to turn towards the alternative: a vigorously expansionary fiscal policy, with massively increased state investment in the economy. This option lies just below the surface of public discourse: the neoliberal triumph of recent decades was never able to entirely eradicate it from public discourse and memory. But as long as the public can be kept believing that monetary policy will achieve some semblance of growth, later if not sooner, that the economy’s managers are busy refining monetary policy tools to accomplish that, fiscal policy can be that much more effectively kept out of the picture.
To read the rest of Desai’s analysis, check out the article on the Guardian‘s Comment is Free site, here. For more information about Geopolitical Economy, published in Febuary, click the book details below.
After US Hegemony, Globalization and Empire
“You are not likely to find a better contemporary history of the world’s economy than this one. It is hard to put down, but the greater joy is that it undoes myth after myth about neoliberalism’s inevitability and the neoclassical abstractions that economic history has little to do with the state any longer. The state and class battles will continue, and had better, argues Professor Desai.” – Jeff Madrick, Editor, Challenge
“Desai’s book shatters the stale notions that characterise traditional international political economy. Just as the world economy is crumbling before us, she has provided scholars with a fresh, compelling and forceful account of the US’s failed efforts to dominate the world order order. “ – Professor Ilene Grabel, Josef Korbel School of International Studies, University of Denver, USA