Quantitative Easing and Quantitative Easing for the People are not the same.

After the financial crisis of 2008, a new phrase entered the lexicon – ‘Quantitative Easing’, or QE. As people lost their jobs, defaulted on debts and lost their homes, and banks and businesses failed, central banks feared a repeat of the Depression of the 1930s. To ward it off, they poured money into the economy. They did so by buying assets – their own government’s debt, government-guaranteed assets such as mortgage-backed securities issued by quasi-government agencies, and in some cases corporate stocks and bonds. They paid for the assets with newly created money, which went directly into deposit accounts in commercial banks. As a result, money ‘in circulation’ ballooned, while interest rates fell to historic lows.

But the money didn’t circulate to the places where it was really needed. The problem with asset purchases is that assets are owned mainly by the rich, and the rich don’t need to spend money. So, when they sold their assets, they simply reinvested the money in other assets. Prices of prime real estate in city centres soared. Oil prices, commodity prices and the prices of essential foodstuffs soared. Stock prices rose to extraordinary heights. Corporate bond yields fell to unprecedented lows.

In theory, rising stock prices and falling corporate bond yields should have encouraged corporations to invest. But they didn’t. Instead, corporations borrowed cheaply to buy back their stocks. This flattered their return on equity, but it didn’t create jobs.

Meanwhile, the expensively bailed-out banks were not lending. Pressured by regulators, their focus was on repairing their balance sheets and making themselves safer. So they cut back riskier lending such as loans to small businesses, and they made it more difficult for ordinary people to obtain mortgages and borrow for consumer spending. QE increased their reserves, but it didn’t encourage them to lend. And people didn’t want to borrow, either. Many had lost their jobs, or suffered falls in their real income due to stagnant wages, benefit cutbacks and inflation. Many were already highly indebted and unable or unwilling to take on more debt. So not only were banks not lending, people weren’t borrowing. People began to ask why banks could be bailed out, but not people. If repairing the economy means getting people to spend more, wouldn’t it be better to give money directly to people?

This book argues that giving money directly to people is the best way of restoring damaged economies. When the next crisis comes – and come it will – ‘QE for the People’ should be the policy tool of choice.