Can’t We Just Print More Money?!

There is a significant learning curve. A new generation is only beginning to realise there is no such thing as a magic money tree after more than ten years of maintaining the Bank of England’s money-printing machines.

The return of double-digit inflation, which brings back memories of the 1970s, is quickly altering the political narrative. All economic measures have repercussions.

Two economists from the Bank of England, Jack Meaning and Rupal Patel, had the notion to write an explanation of economics for sixth graders and other interested laypeople, but they had no clue that the Bank would end up in the middle of political controversy.

After all, the Old Lady of Threadneedle Street has mostly managed to keep to the 2% objective for consumer prices established by the Government since the Bank of England achieved its independence from the latter in 1997.

Prices didn’t start to soar until after the simultaneous crises of COVID-19 and Russia’s invasion of Ukraine.

Andrew Bailey, the governor of the bank, took a while to get moving with monetary policy, and the institution’s credibility has been put to the test.

‘Can’t We Just Print More Money? Economics In Ten simple Questions’, a paperback book by Bank economists, has a self-evident solution.

The passionate writers at the Bank acknowledged that there has never been a time when a better grasp of the economy has been more necessary.

‘I think it’s for everyone really,’ Patel said. ‘Anyone who is wondering, right now, why energy prices are going up.’

Why did the Bank fail to anticipate the inflation crisis is a very important question that is hanging in the air?

A former economist with the independent National Institute of Economic and Social Research (NIESR) think tank, reveals that he formerly served the BOE’s chief economist Andy Haldane as his personal secretary and that he did sound the alarm.

Haldane, now chief executive of the Royal Society for Arts (RSA), cautioned in the spring of 2021 that the ‘inflation genie is out of the bottle’.

‘Financial crises and these big events are difficult to spot, in the same way, the weatherman can’t tell you precisely at 4pm that the rain is going to come down,’ Meaning says.

Inflation is more complex than most of us think and those who can spend their whole lives studying it, and still get it wrong, he argues. This, in his view, makes it even more important that people who haven’t thought about it for five minutes need some grounding and education.

‘The Bank implemented quantitative easing (money printing) when the economy needed to be stimulated,’ Patel interjects.

‘In the book, we go through why we can’t just go on printing money and how it can lead to inflation.

‘The current rate of inflation is caused by loads of factors out of the Bank of England’s control.

‘There is not much we can do to influence energy supply from Russia. We hope that if people start to understand a bit more about what’s happening in the economy right now, they’ll be able to understand where things can be controlled and where they can’t.’

How will rapidly rising interest rates affect you?

In a rush of rate increases that would have been inconceivable a year ago, the base rate has risen from 0.1% to 1.25% in the last six months. The onus is on the Bank of England to demonstrate that it has a handle on things and that we aren’t returning to the 1970s with inflation now running at 9% and predicted to climb into double digits shortly.

But is it wise to raise interest rates quickly? How will it impact investors, borrowers, and savers?

The Bank seems out of touch due to the way it approaches inflation trends and interest rates overall.

After first labelling skyrocketing prices in 2021 as “transitory,” after the Covid restrictions began to be lifted, it wasn’t until the year’s end that the BOE initiated an effort to slow prices down.

Since then, the Monetary Policy Committee, which determines interest rates, has approved rate rises, taking them from the absurdly low level of 0.1% to 1.25%.

However, the Federal Reserve, the Bank’s American equivalent, has been more aggressively proactive, raising rates this month by 0.75 percentage points all at once.

The Bank’s sluggish reaction has drawn implicit criticism from former governor Lord King, a caution from Chancellor Rishi Sunak not to let inflation become

systemic, and a plea to embrace “sound money” from former Permanent Secretary at the Treasury Sir Nicholas Macpherson.

The focus of Patel and Meaning’s analysis is not so much on the causes of inflation as it is on how it affects common people.

‘High inflation at present is essentially eroding the power of money to buy things,’ Meaning says. ‘The pound in your pocket is buying you less in the shops – everyone knows it and feels it when they go to the supermarket.’

Meaning’s former employer NIESR recently found itself in the headlines when it claimed that the failure of the authorities to get a grip on inflation could cause 2m Britons to fall into ‘destitution’. That, in Meaning’s view, is all the more reason to read their book because ‘it shows the power of economic forces and the ‘genuine impact on people’s quality of life’.

According to him, major phenomena like a rise in the cost of living or recessions have an impact on people’s health, well-being, and, most importantly, their ability to generate money throughout their whole lives, not just the current moment they are living through.

Current dialogue is dominated by inflation because of the times we are in. The book’s writers also attempt to illustrate how, despite all the unfavourable present circumstances, economic forces in the form of inventions, innovations and technology have raised living standards for all the citizens of the world.

At the moment, people often discuss computers and the internet. However, as Patel notes, “the simple washing machine actually helped a lot of people, especially women, to have better opportunities.”

It must be difficult to work at the Bank of England right now with the critics pouncing on the seeming lack of its forecasting abilities to foresee the inflationary danger.

But all of this has another side to it. Nothing can pique curiosity in how economies function like a good crisis (Patel and Meaning estimate they occur every 10 years or so).

The writers of the book hope that it will motivate a new generation of economists, both among older and younger students.

King, who served as the BOE’s governor from 2003 to 2013, often lamented that the UK lagged behind in developing economists with PhDs at home and had to import them from the rest of Europe.

Patel and Meaning would have served the public well if they are able to change that trend.

They have promised to provide copies of their book to all state secondary schools in the country with the book’s proceeds.

That would be a fantastic outcome and might aid in repairing the institution’s reputation after the reintroduction of price rises a la the 1970s.

‘Can’t We Just Print More Money? Economics In Ten Simple Questions’ by Rupal Patel and Jack Meaning, The Bank of England. Published by Cornerstone Press & available at the usual retailers.


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