David Cameron and Vince Cable are both wrong. Infrastructure isn’t the answer and nor is QE – money in pockets is

Why not build a bridge to the moon? It will restore confidence, “kickstart infrastructure spending”, create thousands of jobs and boost British scientific and engineering expertise. A moon base could exploit rare mineral resources and even relieve the housing crisis. A Humberside portal for the bridge will help close the north-south gap. The prestige gain for business would be immense. The consultants are ready. Britain showed it could do something extravagantly pointless like an Olympics. Why not go to the moon?

This is the level of economic debate in the UK at present. Bridge-to-the-moon projects have been knocking about business schools for years, ever since George Bush proposed a lunar colony in 2004. They offer every cliche in the “growth strategy” book, including a sensational ministerial headline.

Britain now has two government economic policies. On Thursday the prime minister, David Cameron, was in Yorkshire, promising that the recession was almost over and things were on the mend. Meanwhile Vince Cable, the business secretary, was dismissing the PM’s policy as too timid and proposing more spending on our old friend, infrastructure.

Both ministers agree on essentials. They accept the Treasury and Bank of England view that the level of demand in the British economy is about right to contain inflation and nothing else really matters, not even stagnation and recession. The only difference between them is whether a little stardust might be in order from a handful of high-profile building projects – some roads, houses, power stations – guaranteed against future borrowing. It is roughly the same policy as advocated by Labour’s Ed Balls. Demand is bad, infrastructure good.

As a result there are not just two policies but two British economies now running in parallel. One is doing just fine. The stock market is back to its highest level since before the crash in 2008. Banks and their executives are returning to prosperity. This has nothing to do with the economy but with the microeconomy of quantitative easing. QE has given £375bn to the banks, who have used it to refinance government debt and inflate the stock market.

Rather than boost the economy with renewed lending to businesses, this vast sum has depressed demand by reducing bond yields, cutting private pensions, and forcing companies to funnel money into pension schemes to keep them solvent. The Pension Insurance Corporation estimates the Treasury has lost £37bn in corporation tax as a result. If anything, QE has sucked spending power out of the economy. Yet for some reason the BBC continues to call it “pumping money into the economy”.

The reason banks have not been lending to businesses is easy to see in the second, real, economy. It is flat, indeed went backwards in the last quarter. Triple-dip now beckons. Retail sales sputter up and down. Manufacturing and construction are dormant. Exports, which should benefit from a devalued pound, are ailing. The economy is drained of blood. It craves cash in circulation, and the government starves it. The banks are right: why should they risk bad credit on businesses with no customers?

The sole coalition policy for growth this past four years has been QE. It has been a pretence, an intellectual confidence trick, with the economic establishment buying into it. The reason is that the Bank of England under Sir Mervyn King is still more worried about inflation than about continuing recession. Asked to justify QE, all King and the Treasury can say is, “Things would have been worse without it”.

After four years of failure he really should prove it. The trouble any layman has in arguing this toss is that QE is so technical and dreary that nobody dares challenge the pundits. Yet the question for King is not whether Britain would be worse off without his donation of £375bn to the City but whether it might have been better off had the money gone into consumer circulation.

Suppose the government had used its printing presses to put the same £8,000 a head into the pocket of every man, women and child in Britain? Or suppose it had written off the equivalent in private and housing debt? Would the economy really have been worse off than it is now? I do not believe it.

The argument over so-called “helicopter money” continues to rage. Two members of the bank’s policy committee, Adam Posen and Andrew Sentance, have queried as to whether QE as such has been effective. The maverick candidate for the bank governorship, Adair Turner, gave a lecture to the Cass Business School last month, pleading to lift the “taboo” on discussing unconventional or “overt” increases in money supply to the economy. He suggested using QE to finance handouts, tax cuts or benefits rises, reflating the real economy rather than just the stock market. Turner pointed out that the economy is so far from operating at full capacity that the risk of inflation is now minimal. Britain’s problem is not inflation but intractable recession.

Turner is focusing on what is now a classic of British establishment snobbery. Giving money to ordinary people to spend is considered by the Treasury, the Bank of England and Westminster to be immoral. (When they did it in Sweden it led to a surge in employment.) Yet it is just fine to give similar sums to “respectable” bankers, pension fund managers, consultants, contractors.

Last year, after blowing £375bn on QE, the government blew another £80bn on a bank lending scheme. Lending actually fell by more than £2bn. The Treasury has no shame. Had local councils wasted so much money they would have been wound up overnight. The money went on inflating the assets of the rich.

Now the cry is once more for infrastructure spending, code for respectable spending, spending on things ministers want by “people like us”. One day in the future a railway, a power station, a housing estate, may be built. Perhaps some of this will some day trickle down to the consumer, but not now. For the present, the policy is merely to swill ever more money around the City, perpetuating a recession now forecast to last a decade.

For most of those alive today, this must constitute the greatest failure of political intelligence of the age. And nobody dares try any other plan. How historians will curse us.