British capitalism is dysfunctional, and policy-makers have done little since the crisis began to repair it. This isn't (just) my opinion, but that of some monetary policy committee members. Today's minutes show that some thought that:
the benefits of further asset purchases were likely to be small relative to their potential costs. In particular, further purchases could lead to an unwarranted narrowing in risk premia.
For me, this is one reason to favour looser fiscal rather than monetary policy. Fiscal policy can be targeted towards real investment and jobs, whereas monetary policy, especially near the zero bound, has more uncertain scattergun effects.
But leave this aside. Let's ask: given the fiscal stance, is this a good argument against loosening monetary policy*?
Two things suggest not.
First, "narrowing risk premia" is not a bug of QE but a feature. One way in which QE is meant to work - and probably did at first (pdf) - is by encouraging a portfolio rebalancing towards corporate bonds and equities, which reduces firms' cost of capital and thus stimulates capital spending.
Secondly, even if looser monetary policy does lead to asset bubbles, this needn't be catastrophic. For example, the tech bubble burst in the early 00s without serious adverse effects upon output - not least because it wasn't accompanied by large deleveraging or counterparty risk - and it left us with a useful legacy of a broadband infrastructure and some valuable companies.
Why, then, are these considerations weak? The answer could be that MPC members believe two things (or at least attach some weight to them):
- that the capacity of the financial system to bear risk is still so impaired that asset bubbles can't deflate without adverse effects.
Insofar as these are the case, then capitalism - in both its real and financial forms - is still dysfunctional. In this sense, MPC members are as sceptical about the functioning of the economy as some of us Marxists.
* I suspect a similar objection could be made to issuing forward guidance, as well as to QE; what's at issue here is monetary policy generally, not the precise form of it.