Bank expert claims enforcing budget cuts ‘unnecessary’

The Government should be allowed to ease up on fiscal consolidation in the budget, David Blanchflower, a former member of the Bank of England’s Monetary Policy Committee has said.

“There is no economics you can bring to bear that says you have to do this in three weeks or 10 weeks.

“Right now there are significant downside risks to what is going on especially from what is happening in the US.

“To enforce this [budget cuts] seems unnecessary,” said Mr Blanchflower who was in Dublin to speak at the Davy Stockbroker annual conference.

The Government is looking at easing up in the scale of adjustment in the Oct 16 budget. The agreement with the troika is to reach a 5.1% fiscal deficit next year through €3.1bn in cuts. However, the Labour Party wants to ease up in the level of nominal cuts on the basis that the savings made through the restructuring of the promissory notes means the Government is forecast to exceed the 5.1% target if it proceeds with the €3.1bn in cuts. The troika wants the Government to stick to the €3.1bn figure.

Mr Blanchflower is one of the most vocal opponents of austerity. He argues that as a policy, it is misguided and has delayed global economic recovery.

“The recovery in the 1930s took 45 months. We are now in the 66th month of this recovery, which means that it is the slowest recovery in 100 years,” he said. “I would personally loosen monetary policy and loosen fiscal policy; stimulate growth and abandon austerity.”

The British Conservative Party conference is currently taking place in Manchester. In his main speech, George Osborne, the chancellor of the exchequer, has claimed that austerity is working and it is putting the economy on the path of sustained growth.

Not surprisingly, Mr Blanchflower disagrees with this assessment. “In 2010 he [Mr Osborne] claimed that output would grow by 2.8% in 2012. Output grew by 0.2% last year. We have had one quarter of growth. To take credit for this small temporary pick up is amazing.”

The Dartmouth University economics professor adds that Mr Osborne originally claimed that the necessary adjustment would take place over the lifetime of the first parliament. “Now he is saying it will take a second term so that is five more years of austerity to look forward to.”

Mark Carney took up the role of governor of the Bank of England in June amid much publicity and hype. Mr Blanchflower is not a member of his fan club.

“He said one of the most stupid things a central banker has said in a long time.”

In a recent interview he said rising bond yields does not represent [monetary] tightening.

“I think he may need to go back to college and do a little bit of studying economics.”