"Printing money would push up inflation, lending rates, squeeze out money for schools and hospitals and mean spending more on debt servicing."
This is one of those statements which is true at certain times and in certain circumstances. At others it is dangerous nonsense. It just so happens that we are living during one of those times when it is really badly wrong and it doesn't take too long to demonstrate this.
Let us start with recent history. The UK has printed £375 billion of money since 2008 via quantitative easing. Instead of inflation rising it has dropped to zero. Instead of raising interest rates the printing of that money has increased the supply of money and therefore made it cheaper to borrow. Interest rates are at an all time historic low. Printing of money has been at a record high. So the two most important claims that Chris Leslie makes are directly contradicted by recent experience.
When it comes to squeezing out money for schools and hospitals this is also simply wrong. Extreme right wing economic theory says that there is only so much money in the world and it the state spends some of it then it must squeeze out spending elsewhere in the economy. But the real world isn't remotely like that. Government isn't like an individual household or a single company. It can use the central bank to print money whenever it chooses and the problem for government is not getting hold of cash but deciding how much of it would be sensible to print at any one moment in time.
A responsible government doesn't take risks about printing money carelessly at the wrong time because that does cause inflation. But it is just as true that a responsible government doesn't take risks about failing to print money when the economy needs speeding up. Responsible government consists of trying to do the opposite of what is happening in the wider economy. If the economy is roaring ahead and people are borrowing and spending too much then the government should indeed reduce the printing of money, cut back on expenditure or rise taxes and make sure inflation is under control. When the economy is slowing down the job of government should be to stimulate the economy. It should print money, spend it on wise investments, and get the economy moving again.
The track record of our governments during the boom was not impressive. Gordon Brown told us that he had put an end to boom and bust and let government spending increase during a boom. This catastrophic mistake was not forgotten by the electorate who punished Labour for it.
Since the crash the actual behaviour of governments has been very different to the rhetoric. All their talk has been about cutbacks and austerity. At the same time they have ensured that a huge amount of money has been printed and poured into the economy. The amount, as you can discover easily from the Bank of England's website is £375 billion so far. It wasn't used to invest in reducing energy consumption or creating a Northern Powerhouse rail structure. It was used to buy government debts that were held by the private banks.
This Quantitative Easing has had several positive impacts. One was to save the banks and leave them able to start lending again. In other words state intervention saved the free market from collapse and along the way saved a lot of people from being out of work and losing their savings. Another impact, that almost no one is mentioning, is that it left a great deal of the national debt being owed to ..... wait for it ... ourselves. The Bank of England will now be the proud owner of an extra £375 billion of national debt. We own the Bank of England. So we owe a lot of the money that everyone is worrying about to ourselves.
Since these huge numbers confuse us all let us be clear. That isn't enough to remove the whole national debt. But the horrible programme of cuts proposed by the Conservatives cost only £30 billion. If the government chose to tell the Bank of England to simply cancel that £375 billion of debts then it would cover the cost of the cuts many times over.
As it happens using printed money this way is indeed usually a bad idea and might well produce some of the problems that Chris Leslie is worried about. It really is dangerous practice to balance the books over the long term by printing money. Covering the government's daily running costs is not a particularly wise use of a stimulus. But it is very good practice to print money during a downturn and invest it increasing the productivity of the economy, improving infrastructure or reducing energy consumption.
Pumping money into the economy during a downturn in this way has been standard economic theory since the Roosevelt's New Deal. And it works. Because what makes money valuable is not gold reserves. What makes money valuable is the goods and services that are produced within the economy that prints that money. The money within your pocket is extraordinarily unlikely to be spent on buying gold. It will be spent on shopping or down the pub. It will be exchanged for what people produce. And if you get people producing more then you can print more money. Or to put it in the right sequence, when there has been a major economic problem like the 2008 crash the job of government is to print money, get people back to work doing useful things and then collect more taxes as all those productive people spend their money on the things that other productive people have produced.
Since 2008 the USA has printed over $3,000,000,000,000 - its economy has recovered rapidly and it is growing at 2.3% per year.
The UK has printed £375,000,000,000 - it grew at an annualised rate of 2.8% last quarter.
Germany has resisted printing money because it thinks it is feckless - it is growing at 1.0%
Greece has made huge cuts in government expenditure - it has 25% unemployment and has contracted.
In other words the economies that have printed the most money have recovered the most rapidly and those that have made the deepest cuts are in the worst trouble. Responsible politicians should be making this point and debating what is the wisest thing to spend the stimulus on. Not accepting that cuts should be inflicted on the poor whilst we help the banks to recover. This is bad economic analysis and bad politics. The electorate won't vote for austerity light - just ask the Liberal Democrats.
The dangerous, reckless irresponsible politician who doesn't understand economic realities is therefore not the one most people would think - on this occasion it is Chris Leslie! The shadow chancellor.