Russell Lynch: Printing more money is still worthwhile even if the price is a divided society
Thursday 17 January 2013
Outlook Is it time to stock up on shotguns, baked beans and bottled water, and prepare to ride out the coming apocalypse? Efforts to salvage growth by printing hundreds of billions of pounds have raised hackles among plenty of experts worried about rampant inflation. But comparatively few are saying we need to hunker down and prepare for a Mad Max-style future.
Medieval witch trials, Robespierre's reign of terror and the emergence of punk aren't the usual fare of City economists, which is why I'll miss Dylan Grice, an economist at Société Générale's global strategy unit, who is off to join an investment fund.
Mr Grice takes a long-run view, and by long-run I mean about 2,000 years. But the general thrust of his presentation – entitled First, We Kill All Economists... – this week was perfectly simple: when money breaks down, society breaks down. He is also scathing about the apparent total confidence with which the current generation of central bankers, our own Sir Mervyn King and the US Federal Reserve's Ben Bernanke among them, believe in their ability to control inflation.
With most economists, you get graphs of GDP growth or retail sales. Not Mr Grice: he links Diocletian's third-century persecution of the Christians to the dramatic plunge in the silver content of the Roman denarius. He also maps out a huge spike in inflation in 16th and 17th-century England, with a jump in witch trials. Even the Sex Pistols and the rise of punk are thrown in as a result of the UK's own nasty 1970s inflation bout. His point is that when you print money, there are winners and losers. The Bank of England's own assessment of quantitative easing last year, which showed richer people benefiting more from rising asset values (because they have more assets), underlines this. Mr Grice is worried about a divided society of winners – "the guys at the front of the room", in his phrase, being subsided by the losers at the back.
Is he right to be worried? Britain definitely feels like an angrier place, particularly if you're a banker hiding from Occupy. As for persecuting minorities, I don't think we're quite there yet. The number of racist incidents recorded by the police in England and Wales actually fell 8 per cent to 47,678 in 2011-12. But generational tensions are simmering as one in five young people struggles for a job, and there is something disturbing about the current political rhetoric of "workers vs shirkers" as we chop benefits for the working poor.
On the other hand, what would Britain look like without the unprecedented stimulus pumped in by the Bank of England? Probably a much deeper recession and well over 3 million unemployed. That really might be survivalist territory. Perhaps Mr Grice should cut Sir Mervyn et al some slack.
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