The Staggers

The New Statesman’s rolling politics blog

No, really, George Osborne - here's your plan B

More economists join the revolt against austerity.

By Helen Lewis Published 18 August 2012 9:15

Paul Krugman. Photo: Getty Images

"There is no plan B," declared George Osborne in October 2010, as he slashed public spending to reduce the deficit. He promised that the plan would create "a platform for economic stability".

But as time has worn on, and the UK has plunged into a double-dip recession, more and more experts are urging the Chancellor think again. (This week's New Statesman cover story has nine of 20 who signed a letter in support of Osborne rethinking their positions.)

Now, the Guardian has repeated an exercise done by the New Statesman in October last year and asked leading economists what their Plan B would look like. (They asked seven, including Robert Skidelsky. We asked nine, including Robert Skidelsky).

Some of the advice is fairly straightforward - end austerity and stimulate the economy. Here's Joseph Stiglitz in the Guardian:

The good news is, you're not part of the euro. So my first piece of advice would be, don't join! And second, call off the mad austerity. No large economy has ever recovered from a downturn as a result of austerity. It is a certain recipe for exacerbating the recession and inflicting unnecessary pain on the economy.

And here's Paul Krugman:

My message to you is: do the opposite of what you've been doing for the last two years.

As well as simply "change course", many of the economists have offered concrete proposals. Here at the NS, Jeffrey Sachs called for a financial transaction tax:

I am strongly supporting the call for a financial transaction tax, or FTT, which I believe would add efficiency to the global financial system by reducing destabilising speculation (as argued by James Tobin 40 years ago) and by raising revenues fairly from the undertaxed, high-income financial sector. As you know, we have a race to the bottom in the world tax system as the UK, US and others jostle to attract mobile capital.

This race to the bottom in taxation and regulation was one reason that the financial system became dangerously deregulated in the lead-up to 2008. It is also why US corporate tax revenues as a share of GDP are plummeting. US multinational companies are increasingly hiding their profits in the Cayman Islands and other tax havens. All countries have a shared interest in ending these tax havens.

In both publications, Robert Skidelsky calls for a national investment bank, while both Sushil Wadhwani and Steve Keen advocate giving money directly to the public - either in vouchers or cash - to get them spending (think of it as quantitative easing, but more fun). Other suggestions include a recovery fund, a "green new deal" and cuts to VAT and National Insurance. Jonathan Portes advocated lifting the cap on immigration.

Between the two "Plan B" pieces, and the New Statesman cover story this week, the chorus of voices telling George Osborne where he's going wrong - and how he could fix it - should be growing harder to ignore.

Tags: Economy

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27 comments

Mon, 2012-08-20 14:39 — Jim Reid (not verified)

Just to clear up a factual inaccuracy Red Rain:

"But meanwhile here the U.K. economy is growing sluggishly".

The UK economy is not growing. It has contracted in the last 3 quarters and is in a double-dip recession caused by Tory cuts.

I'm with the economists who say give cash straight to the people in the form of vouchers. If you give a family £250 to spend in their local town most, not all, will immediately go out and spend it. This then gets money into the economy rather than sitting on the balance sheet of the banks who caused this mess in the first place!

Sun, 2012-08-19 19:51 — Terence Henderson (not verified)

I wonder why he feeds the mouths of starving Africans whom use drugs and get all benefits;housing and bus passes,also have a Porche outside to do their deals.... within the UK before pensioners that worked in dark Satanic factories for 50 years!

Come from Africa with AIDs and TB and they get better free drugs than our cancer patients, whom got their cancer working in brake-lining factories, before they were exported to Asia and East Europe!

Mon, 2012-08-20 16:05 — Stephen Kent (not verified)

Your post is evidence of your insanity.

Sun, 2012-08-19 19:42 — Terence Henderson (not verified)

Is not Ozzie; married to Sharon;fter a coke sppying night earner coke merchant and beforehnd an earner of a geography degree after failing at boarding school?

Sun, 2012-08-19 19:44 — Terence Henderson (not verified)

coke feeding madame it should have read!

Sun, 2012-08-19 19:00 — Eddy S (not verified)

Mr Sachs you are a prat the UK has a tax or share trading what does the US have nothing my friend, practice what you preach then speak!

Is this a plan B NS sounds like a plan Z you offer nothing. The tories could organise a growth policy but you offer nothing, what we need is major investment in uk infrastrucure. HS2 needs to start from the north now, we need a super airport and major investment in tidal technology starting with the river severn. Where are your projects NS that will make the UK the most competitive economy in the UK. I see nothing in this article, hoe depressing!

Sun, 2012-08-19 12:27 — Red Rain (not verified)

Mr Bingham it was the previous Labour government that couldn't resist taking the piss with the nation's finances. Hasn't Labour's last chancellor just wrote an open letter stating George Osborne should do something, anything but didn't state exactly what that something, anything should be?

Sun, 2012-08-19 21:54 — Mr Bingham (not verified)

Red Rain

Many Governments all over the world were borrowing large amounts of money with the knowledge/thought that they would be able to pay it back without problems within a few years but then the unimaginable happened due to the Banks & Financial Institutions greed and wrong doing resulting in the worldwide financial crisis.

If the banks, financial institutions and others had not have been so greedy and involved in wrong doing this situation would have never occured.

Cast your mind back and you will recall that the Tories actually wanted even more deregulations of the banks and financial institutions. If the Tories had of been in Government during the worldwide financial crisis they would have been in the same situation, probably worse.

I could go on but I will leave it there as you are more than aware of the reality/truth.

Just think the Tories prentended that they could sort all these problems ! How to avoid a double dip recession and not to borrow more. It really makes me laugh the fact that the Tories wanted less regulations than the Labour Government.

Mon, 2012-08-20 06:50 — Red Rain (not verified)

It's very difficult to understand why people can still support a party that had bankrupted Britain during its disastrous spell in power, not to mention dragging the country into an illegal war in Iraq and ‘buying’ the 2005 general election with cash that it raised by selling peerages to wealthy individuals. How thick do you need to be to support such a party? Or maybe some in Britain have very short memories and have already forgotten what was going on just a few years ago and why is it that you still support them? It can’t be the economy, that’s for sure, considering that Labour is still run by the very same people who screwed up Britain’s finances.

Mon, 2012-08-20 20:56 — Mr Bingham (not verified)

The Labour Party did not, has not Bankrupt Britain. Get your facts right.

Britain has never been Bankrupt in recent history.

In addition to this the Labour Party did have a plan to bring down the deficit as Mr Darling spelt out numerous times, before, during & after the 2010 general election. The problem was that Gordon Brown (The Stupid One) was not being completely honest about the entire matter and lost credibility with the electorate. That left the Labour Part completely vulnerable to David Cameron and companies total exaggeration regarding the entire matter.

If the Labour Party had of remained in Downing Street after the 2010 general election they would have done a better job than this Tory Led Coalition. After all the economy had started to pick up several months before the 2010 general election and the Tory Tax Bomb changed all that. Remember the rise in VAT that the Tories promised they had no intention of bringing in but did so along with a number of other Tory lies that came to light after getting into Downing Street. Even The Governor of The Bank of England Mervyn King famously and publicly warned that the Tories were inexperience and cannot/should not be trusted with the British economy.

That is evidence that The Governor of The Bank of England Mervyn King knew that the Labour Party knew what they were doing and would have been the best choice to bring the British economy back to health after the Banks and financial institutions messed up the worlds finances causing many, many countries all over the world to suffer the same fate.

This Tory Led Coalition is built on the foundations of deceit and lies.

Mon, 2012-08-20 12:35 — james1071 (not verified)

1 Labour did not bankrupt Britain.
2 The large deficit was the result of the financial crisis, over which the UK had little control.
3 There were various policy errors that created a credit boom, but the Conservatives did not disagree with Labour's approach.

Mon, 2012-08-20 17:08 — Red Rain (not verified)

Labour didn't bankrupt Britain but they came very close to it. "The large deficit was the result of the financial crisis" Partly..... "There were various policy errors that created a credit boom" and Labour was responsible for all of them.... Answers me this.. How was it possible to raise £5,ooo billion in taxation in the past 10 year's yet leave ourselves without the £5,0oo billion needed to maintain and expand our transport and power infrastructures?

Mon, 2012-08-20 18:33 — matthew fox (not verified)

Explain to me, how your in power for 17 years, you added £264 billion to the national debt, spent £400 Billion of north sea oil and state sell off receipts, and managed to leave a NHS waiting list of 1 million?

For the financial year 2010-11, government revenues came in at a record £529 Billion, but still managed to borrow billion upon billion, how does square with your criticism?

Tue, 2012-08-21 09:49 — Red Rain (not verified)

Maybe it's because the nation is still spending more wealth than it's creating a situation that simply can't continue you cannot keep printing or continue borrowing money indefinitely. Hard and often difficult choices have to be made and if this government is struggling with these unpalatable choices what hope would an economically discredited Labour government have considering Labour’s own financial and political dependence on the public sector unions. No it’s better the devil you know than an old friend you no longer trust.

Tue, 2012-08-21 18:40 — matthew fox (not verified)

Wouldn't it have been a better to address my points, rather then waffle Red Rain.

Why did the Government just borrow an additional £3 Billion if it has taken
" unpalatable choices"?

They enjoyed record tax receipts and still managed to borrow hundreds of billions.

Sun, 2012-08-19 21:54 — Mr Bingham (not verified)

Red Rain

If the banks, financial institutions and others had not have been so greedy and involved in wrong doing this situation would have never occured.

I could go on but I will leave it there as you are more than aware of the reality/truth.

Tue, 2012-08-21 10:12 — Red Rain (not verified)

Don't you agree Gordon Brown made a big mistake when setting up FSA and splitting it's responsibilities didn't this decision proved somewhat disastrous?

Sun, 2012-08-19 21:51 — Mr Bingham (not verified)

Red Rain

If the banks, financial institutions and others had not have been so greedy and involved in wrong doing this situation would have never occured.

I could go on but I will leave it there as you are more than aware of the reality/truth.

Sat, 2012-08-18 19:38 — Mr Bingham (not verified)

I think that George Osborne is now just having a laugh with the objective of making this nation suffer !

Sat, 2012-08-18 19:37 — Mr Bingham (not verified)

I think that George Osborne is now just taking the piss with the objective of making this nation suffer !

Sat, 2012-08-18 19:36 — Mr Bingham (not verified)

I think that George Osborne is now just taking the piss with the objective of making this nation suffer !

Sat, 2012-08-18 17:54 — matthew fox (not verified)

Austerity has failed to work, you only have to look at Ireland and Greece to work that out.

All the spending cuts were rushed by Osborne to grab headlines. You cut with a laser, not with an blunt knife.

Sun, 2012-08-19 08:03 — Red Rain (not verified)

It’s certainly true that the economies of Greece, Ireland, and Portugal the three countries committed to austerity programs as a condition for European and International Monetary bailouts funds have shrunk over the past year. The unemployment rate is above 10 percent in all three countries. But meanwhile here the U.K. economy is growing sluggishly. But to infer Britain can postpone any serious attempts at fiscal stabilization would be completely wrong—and deeply dangerous. You can't keep spending what you no longer have and you can't borrow your way out of debt and this is basically what this coalition government is still doing-so when I hear people talk of austerity I yawn...

Mon, 2012-08-20 06:41 — Drivel Spouting Pleb

My spending is your income, you can spend your way out of recession because all you are really doing is taking private debt into public ownership to stimulate liquidity and give people the 'freedom' to spend their money with less fear of reprimand. It is very important that the government do this because otherwise permanent economic damage can be caused, at the least it means we stop raising our standard of living, and depression tend to have damaging psychological effects, not to mention the damage long term unemployment causes. At the worst you can get a tailspin of contracting government and private consumption which creates a very hard to control consumption contraction, which only serves to reduce our GDP, which is the last thing anyone wants since it makes everyone worse off.

As for Austerity, its true it isn't yet the slash and burn of the public sector people where expecting, but it terms of long term investment there has been huge cut backs, the Schools for the Future Programme being cut? Delays to large infrastructure projects and serious cuts in academic funding and a 10% drop in the wage rates for male's 16/25 (Similarly as bad for women) are wreaking havoc on a lot of young people and will serve to damage this country's long term growth patterns, like requisitioning seeding corn.

Sat, 2012-08-18 17:24 — John Cheese (not verified)

Glad somewhere on the globe Krugman isn't considered a schmuck...

Sat, 2012-08-18 09:52 — JonathanJK (not verified)

Yes, this race to the bottom is obvious except to the ignorant. Close the tax havens for sure. It's so simple it's stupid not to.

Sat, 2012-08-18 09:41 — Andreas (not verified)

Arguing for a Tobin Tax, again?
EVERY SINGLE TIME it has been tried, it has resulted in a) less trading b) more volatile trading c) fewer revenues than expecting. It is an utterly bloody inane idea.

There are far, far better taxes we could implement. Better property taxes, for one.