The Bank of England has lowered interest rates from 0.5% to 0.25%. This is a historic low, historic in that interest rates has never been this low in the 300 year history of the Bank of England.
Conventional wisdom has it that this will stimulate the economy. Conventional wisdom is wrong.
I can forecast the weather. The weather will do whatever the weather desires to do. If I get it badly wrong, I am made to look a fool.
If the Chairman of the Fed makes s crass remark, markets will go into free fall.
During the EU referendum, we had economists talking down the economy, idiot Chancellor of the Exchequer doing the same, the Treasury publishing a dodgy dossier, the IMF, they were all at it. No surprise then, businesses confidence low.
When a business decides to invest, they do so on the basis the economy is growing, in effect, they are guessing other businesses are thinking the same way, that they too think the economy will grow, in other words, they are all second guessing each other.
These decisions are not predicated on interest rates being low, or wages being low, these are secondary benefits, if a decision to invest is made, then the cheaper the money borrowed the better, the cheaper the wages the better.
If the Bank of England drops interest rates, this sends a signal that the economy does not look too good. If wages are kept low, less money to spend.
Thus the exact opposite impact to that desired.
A game. Three people. Each can put ten pounds in a pot. If all put ten pounds in the pot, win one hundred pounds. If one does not put ten pound in the pot, all lose their stake.
If I put ten pounds in I have to be sure the other players will do the same. If I have doubt, then I play safe, and do not put ten pounds in the pot. The other two players in turn are are reliant upon my decisions and each other.
For a successful outcome, each player has to be certain of what the other players intend to do.
There is no correct answer or logical solution.There is no way of knowing what the other player will do. It simply illustrates how the economy functions. Each layer is dependent upon every other player.
The Bank of England has now backed itself into a corner. It is like a gunman with one round of ammunition left. The Bank of England has no room for manoeuvre. It has only one shot left, drop interest rates to zero. What then?
There is also to be more discredited quantitative easing. Good for property bubbles, inflating stock markets, bonuses for greedy bankers, but very little leaks down into the real economy.
Far better, hand money to people on benefits. They go out and spend in the real economy because they are desperate.
Try removing the discredited Bedroom Tax.
But at least UK has a Central Bank. Countries in the eurozone do not even have that room to manoeuvre.
John McDonnell has correctly called for infrastructure investment. But it has to be appropriate spending. That excludes expansion of London City Airport, additional runways at Heathrow and Gatwick, Hinkley Point C and HS2 gravy train.
It has to be investment in green infrastructure, investment in publicly owned railways creation of community owned and controlled local energy grids, high sped internet.
We need to create community owned local area grids. Into which feed renewables guaranteed a fair price. Consumers would pay a fair price. Any surplus energy would be fed to other local are grids via a publicly owned National Grid. Any monetary surplus would either be fed back into the local grid or used to finance community projects, watering of the collaborative commons.
At a stroke, these local grids would put out of businesses the Big Six.
In parallel, the local energy grid, could create a local high speed Gbit per second network.
This high speed network used for smart metering, load shedding to match the variable outputs from renewables, sun does not shine at night, wind does not always blow.
To put these high speeds in context, attempting to download Bowie Prom to tablet over wifi, connection speed 65 Mb/second and estimated hour for 1.3 Gbytes. On a 10 Gbit per second network somewhere around 10 to 15 seconds. An 8 GB game downloads in two minutes.
These infrastructure programmes are long term, do not lead to immediate injection of money into the economy, but what they do do, is change the perception of where the economy is heading. And thus change the perception of the players of our game.