Richard Murphy’s alternative to QE: Roosevelt’s New Deal

Campaigner Richard Murphy tells European CEO where Mario Draghi's €1.1trn quantitative easing programme would be better spent


A new wave of quantitative easing was announced this week: Mario Draghi has pledged a €1.1tr bond-buying spree by the European Central Bank. Tax researcher and political economist Richard Murphy offers his alternative.

European CEO: So: quantitative easing in the eurozone. In a recent blog you wrote “I am not opposed to money printing – which is what this programme is.” So what’s your alternative?
Richard Murphy: My alternative to the quantitative easing programme, which has quite simply injected money into speculative asset investment, is what I call green quantitative easing. Now, you don’t have to put the ‘green’ in front; but the point is, it’s about spending money into the economy through the creation of new jobs, by the building of new infrastructure.

Now that infrastructure could be hospitals, it could be schools, it could be roads, it could be transport systems, it could be green energy systems – and I think that would be exceptionally efficient, because we’re not good at green energy. It could be tidal energy, which we could invest in and build a sustainable business in the UK.

All of those things create jobs, and they have one unique quality that all of them have; they must create those jobs here, because those assets will be in the UK, and therefore the money will not leak out of the UK into other economies. Which is vital if we’re going to keep the benefit of what we spend within our own economy.

Our banks fell over in part because they did not have enough cash; because they had actually over-geared

So this is a programme about job creation; it’s about putting people to work, it’s about taking people off benefits, it’s about getting them to pay tax. It’s about putting more money in their pockets: so that they spend more, and therefore revive the rest of the economy. But it’s about trying to keep the benefit of that spending process as tightly as possible within the UK, so we give the boost to our economy that we need, using our ability to print money in our central bank – which we’ve got, because we’re not in the euro.

This all makes complete economic sense – it’s called the Keynesian multiplier effect – but it delivers what people want, and that’s jobs.

European CEO: You have been very sceptical about how banks will utilise this cash. However, recent regulations have increased liquidity requirements, forcing banks to sit on cash. So if it’s anyone’s fault, surely it’s the regulators?
Richard Murphy: Well… look. Let’s remember what happened in 2008: our banks fell over.

Our banks fell over in part because they did not have enough cash; because they had actually over-geared. Now, let’s distinguish between the financial services sector and the rest of the economy.

The financial services sector is not there to actually make enormous profits; and it’s certainly not there to drive our economy. The financial services sector is there to service the needs of real people, living in the real economy; and to serve businesses that can create wealth, by creating real products and services required by real people.

And banking does not do that. Banking fundamentally moves money – and its use is of course in spreading risk – but that is insurance, not in banking. So the whole banking process is in fact, pretty much, a zero-sum game.

I’m not worried if regulators say, ‘You must hold more cash, because that will prevent you falling over again. That will prevent you speculating too heavily again.’ I think that what we’ve got wrong is our belief that it is banks that can create wealth, when in fact that is done by the old-fashioned sort of business that actually makes something that people want and can consume.