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Fixing the UK Economy by Giving Everyone £6,000 Is an Absurd Idea

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It feels a bit uncomfortable writing a post criticising the political director of the Huffington Post UK, but I felt I had to having read his most recent blog on "quantitative easing for people (QEP)". Mehdi Hasan asserts that giving every man, woman and child in the UK £6,000 is probably the best way to fix our economy. I almost spat out my tea when I read this.

Apparently, because the Bank of England has happily printed £375billion in the past few years and given it to the fraudsters in the City, repeating this but instead directing it to our personal bank accounts makes logical sense. Does it not sound slightly odd to argue that printing another £375billion and then lobbing it into the streets of London, Manchester and Birmingham is a good idea?

In fact there is no such thing as a magic money tree, as Hasan argues. Money does not grow on trees. Fact. Those who argue that QE in any form is a good idea are kidding themselves. And they are not just "discredited austerians" or "inflation hawks". There is not a single historical precedent of money-printing having ended well. Not one. It always ends in economic ruin. Always.

Money exists to make exchanging goods and services in a complex market economy easier. In simple economies, individuals can barter, e.g. I'll fix your roof for six goats and one of your daughters. This is possible because you can do this face to face, check the quality of the goods your buying and stab the individual in the face if he sells you crap. Much as I would love to be paid in goats, I'm not sure where I would put them, and I'm not sure my job in Brussels would be worth that many.

Rather than goats, therefore, I am paid in currency, specifically euros. I receive the value of the services I give my boss in euros and then spend these euros on other goods and services that are in turn priced by the market. Prices go up and down depending on how in demand the services and goods are in question and how much of these goods and services there are available. Though I would like to think the services I provide my boss are invaluable, they are not and a monkey in a suit could probably do my job. And because there are many monkeys in existence, I am paid not that much because I am, devastatingly, replaceable.

Of course in a world in which banks and big corporations have monopolised pretty much everything, prices are fixed and artificially manipulated, but in an ideal (read: non-existent) world, the market would function properly and prices would fluctuate according to demand and supply. If I were a wise individual, I would accept that I can no longer compete with monkeys, learn a new skill that no one else has and find a different job that values me more.

The problem with money printing is that if you start tampering with the money supply, people start getting confused about how much a euro or pound is worth. A currency is only worth as much as the people who use it think it is. I rely on the knowledge that the value of the money in my wallet today will be roughly the same tomorrow. If I start doubting this, then how am I to know what I should be spending on a loaf of bread today? What if the price increases dramatically over night? I would probably panic, withdraw all my money to buy as much bread as possible and hope for the best. Hoarding is entirely rational in a world in which one's finances are insecure, but entirely irrational if 63 million people are doing it simultaneously.

Why is this relevant to the QE debate? Simple, really. If you inject £375billion into the economy, it dilutes the value of the existing money supply. £1 is no longer £1 because there are so many more of them floating around. And what happens when the currency loses its value? You have to use more to buy the same services or goods, i.e. inflation.

Giving £6,000 to everyone in the realm might sound like a lovely idea, but in reality, it would do nothing but devalue the pound even more than it already is. The markets would see this instantly and would sell the pound, potentially triggering a sterling crisis. Given we don't really make or produce anything anymore, we are entirely dependent on importing stuff, which would cost vastly more if the pound lost its value. We would, therefore, be screwed, even if our bank accounts might look healthier than ever before.

You cannot make something valuable just because you say it's valuable. This goes for money as much as it does for a rare bottle of wine or piece of artwork. The more of something there is or the more easily available something is, the less valuable it becomes. Quantitative easing, or money-printing in normal parlance, is a bad idea full stop. It has never worked before and it is unlikely to this time.

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