Yanis Varoufakis & Olivier Blanchard: In Favour of People’s Quantitative Easing

Two of Europe’s most renowned economists have recently come out in favour of exploring some form of People’s Quantitative Easing. Former Greek Minister of Finance, Professor Yanis Varoufakis, and former IMF chief economist Olivier Blanchard have both agreed that an alternative form of quantitative easing could be a viable option.

On BBC question time, Professor Varoufakis suggested that world’s leading central banks had ‘badly mishandled’ their post-crisis plans for re-stimulating the economy. On the subject of conventional quantitative easing conducted by the Bank of England, the former Syriza member said:

“The notion that the Bank of England prints mountains of money, purchases paper assets in the City of London, bolsters banks – which they had to do – but that then that will trickle down into productive investment, that is a fantasy.”

To be clear, Varoufakis is not suggesting that QE was a direct bailout of any private bank (i.e. the tax payer bailout of Lloyds and RBS). Instead, he is most likely suggesting that the reserves of the entire private banking sector needed to be ‘bolstered’ because in the wake of the financial crisis there was a prevalent lack of confidence throughout the entire banking system. Banks simply were not lending to each other. Bolstering the reserves of private banks was something that had to be done because the current monetary system is dependent on the confidence of the private banking system.

While there were other ways of bolstering banks reserves, (i.e. via PQE), this was most likely unfeasible at the time as mainstream politicians, technocrats, academia and the general public probably would have never consented to such a programme. Indeed, it is important to remember that what we have slowly come to acknowledge as conventional QE was extremely unorthodox back in 2009-2010. As Ambrose Evans Pritchard suggests:

“The public would not have accepted avant-garde QE or helicopter money at the time. The Fed’s Ben Bernanke faced impeachment calls by hard-liners in Congress even as it was. He did what was humanly possible.”

Varoufakis then went onto show his support for upcoming ideas surround People’s Quantitative Easing, and noted significantly, that PQE is apolitical:

“Alternative QE is something which should be discussed. Milton Friedman and Ben Bernanke, who are on the same side of politics as the Tory party, would want to have this discussion.”

The former Greek Minister of Finance however, is not the only renowned economist demonstrating support for PQE. Reuters reports that the very well-known mainstream economist, Olivier Blanchard also supports People’s QE:

“People’s QE” could be an option to help economies fight future crises, Olivier Blanchard, who has just stepped down as chief economist of the International Monetary Fund, said on Wednesday.”

The article goes on to state:

“The verdict is still out on whether central banks should be buying assets, as they do now, or instead tie up with governments to spend it on ‘real’ goods, known as “people’s QE”, as a way of stimulating the economy, Blanchard said during a lecture at the Cass Business School.”

The former IMF chief economist went onto say:

“There is clearly something else you can do if you get to zero (inflation) and still want to increase spending. You can buy goods. Which one should you choose? We haven’t asked the question in the crisis but we should.”

According to Reuters, Blanchard went on to say:

“…this does not mean central banks would buy goods directly. Rather, governments can increase their fiscal deficits by spending on infrastructure projects. Central banks can then buy this debt with newly created money.”