carrot with a stick? We can not only look to the past for inspiration on how to do this, but to the digital money of the future.
With inflation high, public spending and central bank ‘money printing’ has become the scapegoat, leading to calls for spending cuts and/or higher interest rates to combat it. This not only overlooks how inflation is being driven primarily by supply shocks beyond our immediate control, but also the fact that most of the money in our economy is not ‘printed’ by the state, but created by private banks when they make loans – the vast majority of which goes towards bidding up the price of existing assets (including commodities we rely on) rather than increasing the economy’s productive capacity.
Responding to inflation by simply raising the base rate will raise the cost of all investment, including the kinds that will increase supply capacity. We know that a genuinely fair green transition – which would bring down energy costs and ensure price stability – will require huge amounts of public investment, which higher interest rates will only make more expensive. We need a more sophisticated approach to ensure our short term response to inflation doesn’t jeopardise longer term sustainability and the need to genuinely
— source positivemoney.org | Simon Youel | Aug 9, 2022