I regretted calling Guido innumerate. And still do. And I like the way he is holding up lib dem tax policy as an example to all here. But his calling QE a ‘cost’ that can be compared to a tax cut is extremely confusing, in the light of his financial expertise. He writes:
Imagine, and this will take some imagination, Nick Clegg in No. 10 and Vince Cable in No. 11 the day after the election. They implement their manifesto pledge to raise the tax threshold to £10,000 reducing the Treasury’s take by circa £100 £20 billion. It would cost about one-tenth as much as quantitative easing and be a far greater stimulus. That would be £100 £20 billion into the real economy rather than foreign bond investors, benefiting the lowest paid the most.
QE has involved swapping 200bn of reserves for 200bn of gilts. It may lose money, but not 200bn. And if it did lose money, it’s a one-off loss. The 20bn cost of the Lib Dem plans recurs every year. The tax cut is a flow, the QE is a stock.
I agree the tax would be a far greater stimulus. But Fink is right; it can’t be afforded right now.