This is a big week for capitalism. In the next few days, the US Federal Reserve will finally start to remove its accommodative post-2008 crisis policy by pulling money out of markets.
With asset markets buoyant and the American jobs market seemingly strong, policy-makers should be surely saying ‘job well done’? But, on the ground, things look different.
Too few people have participated in this recovery and many more have been left far behind as asset values have soared. QE has worked for the wealthy, but it has cut a deep division through American and European societies.
More worryingly, for all the talk of success, the developed economies will end this year nearly 10 per cent behind in per capita income that their great grandparents were at the equivalent stage of the 1930s depression.
Although the interwar economy sank faster, it resurfaced more quickly and with a faster momentum, as the chart shows. Today, our heads are above economic water-line, but we’re just trashing around. The plain fact is that today’s QE (quantitative easing) policies have failed, not succeeded, to deliver growth.
The big difference between the 1930s and now seems to lie in the balance of spending. Ignoring, as far as possible, rearmament ahead of WW2, much deficit spending was then targeted on housing, roads and major infrastructure projects.
Large parts of today’s built environment originated in the Inter-war recovery, when they helped to provide real incomes and real jobs, from mass house-building and the industrialisation along arterial roads, like West London’s Golden Mile.
With long-term bonds across Western economies yielding barely two per cent, it is unfathomable why governments are not borrowing at these low interest rates and spending more? And, with major Western economies slipping back into deflation and commodity prices plunging, inflation concerns from more spending are hard to accept.
The poor quality of today’s infrastructure makes this inertia even harder to understand.
Perhaps there is also something after all in the Corbynomics idea of a “People’s QE” that allows central banks to finance investment spending by buying up more of these government bonds?
The US Fed should not be reversing QE, but boosting it to help upgrade America’s roads and railroads. Britain is dithering over a new airport runway for London: Heathrow or Gatwick? Just build both.