Don’t Bet On It

Every now and again a newspaper columnist makes readers choke over their cornflakes. As long as the choking doesn’t go too far, that can be a good thing. Making an outrageous comment or thinking outside the box can make an important contribution to public debate.

So I was not too upset one morning in early January 2011 when over breakfast I read Liam Halligan’s influential column in the Sunday Telegraph. He alleged that I was “on the losing side” of the “monetary easing argument”. Halligan and I had disagreed about the costs and benefits of the Bank of England’s quantitative easing (QE) programme since it began in early 2009. I was grateful to him for highlighting a vital issue in public policy. I was also confident that in the end Halligan, not me, would be on the losing side of the argument.

In my view, the banking system was in trouble, partly because of its own mistakes but also because of an official regulatory attack which required it to operate with more capital than before. I therefore expected stagnation or even contraction in the quantity of money. Worried that the money weakness could lead to deflation, I advocated QE. It would lead to the creation of new money by the state rather than the private sector. As long as money growth remained subdued overall (which was my expectation), I was relaxed that inflation would stay down.

Halligan is a lively and pungent commentator, with a gift for colourful phrase-making. His position was quite different, that QE risked a dramatic rise in inflation. QE was “money printing” and tantamount to “the last refuge of declining empires and banana republics”. The main cost would be inflation so serious that it could undermine “the public’s trust in fiat money and the sanctity of contract”. But colourful phrases are not the same thing as a precise statement that can be contradicted by evidence. Both in early 2011 and later I had immense difficulty in extracting from Halligan a forecast of inflation with specific numbers at a particular future date. He cited large rises (doubling, trebling, etc) in banks’ cash reserves as foreshadowing “price pressures” which would “get much worse in the medium term”, but he did not say exactly how much worse or when.

To make matters more precise, I offered Halligan a wager. (Up to £100,000 could be at stake, if he wished, or a lunch at the Savoy, if not.) He would win if inflation over the next two years were at least 3 per cent a year higher than in the previous two years. Given all the ranting and raving about declining empires, banana republics, the sanctity of contract and so on, I thought Halligan was certain that inflation would rise by at least 3 per cent and that in fact he envisaged much higher figures. But he declined the bet and for more than two years discontinued the discussion.

To give Halligan his due, both he and the Sunday Telegraph eventually realised that a proper debate was needed. Early last year an article with our different positions took up a full page of the paper. (There was even a video of a discussion between Halligan and myself, which is still available online.) At long last I obtained a proper inflation forecast — sort of. To quote Halligan, “I’ve often stated that, once bank lending recovers, we could easily see 6 per cent to 7 per cent inflation . . . I stick to that prediction.”

It is now 18 months since our video debate and well over six years since the first round of QE. What has happened to inflation? The answer is that the UK, like most advanced countries, is at present experiencing the lowest inflation over a sustained period since the 1930s. In the year to June 2015 the consumer price index was unchanged. All the respected forecasters expect subdued inflation, or even no inflation at all, for about another 18 months.

Perhaps more fundamentally, the average annual increase in the consumer price index since QE (that is, since March 2009) has been 2.6 per cent, a figure which by late 2016 is likely to be about 2.0 per cent, bang in line with the official inflation target. Will Halligan eat humble pie and admit he was wrong? Apparently, the answer is no. His Sunday Telegraph column on August 9 again condemned QE as “a slippery slope, as some of us have been warning for years”. QE had become “a grotesque, self-serving lifestyle choice of our financial and political classes”.

QE has indeed evolved into something of that sort. To be precise, it has become a grotesque, self-serving lifestyle choice for Liam Halligan himself. He makes much of his living by writing rubbish about it. The saga of QE-phobia at the Telegraph Media Group has gone on far too long, and Halligan’s editors should tell him to grow up and shut up. As anyone sensible can see, QE’s allegedly populist and irresponsible “money printing” has not led to a big rise in inflation, and it is not about to do so.

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