When the Fed offered to buy a large number of securities held by banks, both mortgage-backed securities and government bonds, bankers exchanged these bonds – some of which were likely to be non-performing and therefore loss-making – for the equivalent of a bigger ‘overdraft’. This ought to have cleared up bankers’ balance sheets, and encouraged them to lend more into the real economy. But QE did not have that effect. In the UK bank lending actually fell. Instead the Fed and Bank of England (BoE) effectively provided the private finance sector with additional purchasing power with which financiers could go shopping for speculative assets in the FIRE sector: finance, insurance, and real estate. Lending into a weakened real economy, weakened further by austerity, was regarded by financiers as far less profitable and far more risky.

The key to tackling the problem identified by Adair Turner – the weakness of global nominal demand – is therefore expenditure, specifically, public expenditure that can be undertaken quickly: on the upkeep of roads and railways, on flood defences, on water conservation, on horticulture, and so on.

Of course, public expenditure has to be financed. The most prudent form of financing is loan issuance, not ‘deficit spending’ which implies permanent government overdrafts. Loan issuance, arranged by the government’s debt management office in concert with the central bank and fixed at low rates supported by central bank action, can finance ongoing government expenditure. Thanks to the multiplier, that expenditure on employment will quickly generate returns to the public treasury in the form of tax revenues for repayment of loans.

Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to democratic society.

Keynes’s great contribution to monetary theory, and to the policies of his time, was based on his refutation of an important element of classical economic theory. He argued that the rate of interest was the cause, not as orthodox economists argued the passive consequence, of the level of economic activity. In other words, the level of investment, employment, and trade was caused by the rate of interest. If the rate was too high, the level of investment, employment and trade would fall. If it was low, the level of investment, employment and trade would rise.

Somewhat belatedly, the IMF in 2016 echoed the views of Professors Rey and Bhagwati outlined above, and issued a partial mea culpa in a paper titled ‘Neoliberalism: Oversold?’ [...]

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None of this is news to the victims of neoliberal economic policies in many poor, heavily indebted countries, but the IMF’s mea culpa rattled the cages of many a neoliberal academic and media institution. This included the venerable Financial Times whose economic staff attacked the IMF and ‘its misplaced mea culpa for neoliberalism’, declaring that by far the most important ‘global economic issue is the persistent decline in productivity growth’. Ironic, given that many economists regarded the decline in productivity growth as a direct consequence of mobile capital eschewing investment in productive activity in favour of speculation in volatile financial assets. A state of affairs made possible thanks to neoliberal economic policies.