Empirical evidence be damned say the Keynesians

Quantitative easing demonstrably failed; the Chancellor should not allow a second bout

The IMF's figures are pitilessly clear. The countries which decreed the biggest bailouts and stimulus packages, the countries which printed the most money, are suffering the slowest growth.

The Bank of England's 'quantitative easing' was, in proportionate terms, bigger even than the Fed's. Result? Our inflation rate is higher than our competitors', our economy commensurately depressed. That's what inflation does: it disincentivizes work, punishes thrift and undermines productivity.

No amount of empirical evidence, however, seems to deter the Monetary Policy Committee. As the record of its last meeting make clear, the MPC is gearing up for another splurge.

I suspect the necessarily dry minutes fail to do justice to the comic richness of the deliberations:

Blackadder: 'It's the same plan that we used last time and the seventeen times before that.'

Mervyn King: 'Exactly! And that is what is so brilliant about it! It will catch the watchful Hun totally off guard! Doing precisely what we've done eighteen times before is the last thing they'll expect us to do this time!'

When Gordon Brown and the Bank of England set out on this wretched course, George Osborne declared that 'printing money is the last resort of desperate governments', which is as neat an encapsulation of the phenomenon as you could ask. Inflation erodes the government's debt; but it does so at terrible cost to everyone else.

The last round of quantitative easing was, in narrowly political terms, explicable: it allowed Gordon Brown to put off the worst of the downturn until after polling day. In consequence, however, there will be a nastier crunch now. And, since no amount of QE2 can push it to beyond thenext election, it doesn't have even a party political justification any more. In narrowly partisan terms, the Chancellor's best strategy is to get the correction out of the way, allow the malinvestments of the past decade to be rectified, and let the recovery begin on sober and sustainable foundations before polling day.

Never mind the politics, though. We simply cannot afford to carry on like this. Firehosing yet more public money at the problem won't make it go away; it will feed the blaze.

The Governor of the Bank of England was demonstrably wrong: quantitative easing failed. The Chancellor's original analysis, by contrast, was spot on. No recovery is possible without sound money. That simple truth was the basis of Margaret Thatcher's ascendancy. She, too, was opposed by the established economists of her day, including a professor at the LSE called Mervyn King.

How many more times does the policy have to fail before we give up on it?