Preview: Dear Mr Osborne, Here's your Plan B

World leading economists present the Chancellor with alternatives to austerity.

In this week's magazine, nine of the world's leading economists -- including a Nobel prize winner, one of the Chancellor's own advisers and three former members of the Monetary Policy Committee (MPC) -- write open letters to the Chancellor, George Osborne, urging him to adopt alternative and radical policies to stimulate growth and create jobs.

 

Christopher Pissarides: Cut VAT back to 17.5 per cent

Professor Christopher Pissarides holds the Norman Sosnow Chair in Economics at the LSE and in 2010 was awarded the Nobel Prize in Economics. Writing exclusively for the New Statesman, he tells the Chancellor: "I know you worry about the deficit but I think that you worry about it too much. . . The markets are clearly telling us that you are too worried about the deficit". Pissarides accuses Osborne of being "inflexible" and says the cuts could "slow down the recovery and may even cause a double-dip recession". In his letter to the Chancellor, the Nobel laureate explains the need for a fiscal stimulus to boost employment:

I don't think reducing the top income tax from 50p to 40p in the pound will create many more jobs . . . Cutting VAT back to 17.5 per cent, or reducing National Insurance contributions for those on low incomes, will revive job creation and reduce unemployment. Deficit reduction is best done with spending cuts when the economy is recovering, not with higher taxes in a downturn. There is enough time in the life of this parliament to achieve your deficit-reduction objective with a policy that is friendlier to job creation.

 

Sushil Wadhwani: print money for the public

Economist Sushil Wadhwani, a member of the Bank of England's MPC from 1999 to 2002 and founder/chief executive of Wadhwani Asset Management, outlines his own radical proposal for stimulating consumption and growth, following the latest round of quantitative easing. He tells George Osborne:

We need to ensure the extra money leads to higher demand. One good place to start is with the textbook example of printing money to finance consumption - sending every adult in the country a voucher that can be spent in the next three months. Allocating £300 to each of Britain's 50m adults to spend on goods and services would cost £15bn, or 20 per cent of the £75bn created by the new round of QE. (In 1999, the Japanese government distributed $175 vouchers to the public - 99.6 per cent of them were spent within the six-month limit.) Perhaps you can persuade the MPC that this is preferable to buying gilts?

 

Jeffrey Sachs: agree financial transaction tax

Professor Jeffrey Sachs, a personal adviser to George Osborne on development issues, and director of the Earth Institute at Columbia University, urges the Chancellor to reverse his stance on a Financial Transaction Tax and raise more revenue from the banking sector:

I am strongly supporting the call for a Financial Transactions Tax, or FTT, which I believe would add efficiency to the global financial system by reducing destabilising speculation.

Sachs appeals to the Chancellor to play a leadership role on the FTT, urging:

Please do use your global influence within the G20 and bilaterally to ensure that the US signs up to the FTT . . . Even if the US does not, I would hope that the UK and all of the European Union would agree to such a tax.

 

David Blanchflower: reduce NI contributions

Warning of a future "lost generation" as the number of unemployed young people nears a million, the New Statesman's economics editor, former MPC member and professor of economics at Dartmouth, David Blanchflower, tells the Chancellor:

I suggest you increase the number of university places by 100,000 at once - the universities have a capacity. You could even insist that the extra places be primarily in science and engineering, which would help future growth. Second, give a tax holiday for two years on employer and employee National Insurance contributions for anyone under the age of 25.

 

Robert Skidelsky: Start a national investment bank
Skidesly, emeritus profess of political economy at the University of Warwick and biographer of Keynes, dismisses the paltry funds allocated to the government's new Green Bank, telling the Chancellor:

"We need a proper national investment bank, with more capital and the ability to raise private money . . . You should use part of the proceeds of the sale of government shared in bailed-out banks to increase the capitalisation of the national investment bank."

 

Jonathan Portes: Lift the cap on immigration
Portes, the former chief economist at the Cabinet Office and director of the National Institute of Economic and Social Research, states:

"There is a simple way the government could boost growth not just in the short term but over the medium to long term, too, while reducing the deficit. That is to reverse the damaging restrictions the government has introduced on skilled immigrants and students from outside the European Union."

 

Ann Pettifor: Launch a green new deal
Pettifor, the co-founder and director of the think tank Prime (Policy Research in Macroeconomics), and one of the few economists to have predicted the crash, calls on the Chancellor to ditch austerity, and instead tackle the threat to Britain's economy and environment:

"We need public works programmes that will mobilise a "carbon army" of "green-collar workers" and offer major incentive to environmentally friendly businesses."

 

George Magnus: Lend directly to small businesses
Magnus, the senior economic adviser to UBS Investment Bank, reminds Osborne that "extraordinary times call for comparable economic thinking", proposing that:

"The Bank of England could get involved in direct lending to SMEs and to the government, so that the latter could fund infrastructure and other programmes to boost employment."

 

Chrostopher Allsop: Set up a recovery fund
Allsop, the Oxford professor of economics and a member of the Monetary Policy Committee between 2000 and 2003, tells the Chancellor that "the only lever left is fiscal policy":

"My preference would be public investment for infrastructure, which is sorely needed and could be financed, currently, at negative real interest rates. How about a recovery fund, financed by index-linked gilts?"

 

Alice Gribbin is a Teaching-Writing Fellow at the Iowa Writers' Workshop. She was formerly the editorial assistant at the New Statesman.

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Hannan Fodder: This week, Daniel Hannan gets his excuses in early

I didn't do it. 

Since Daniel Hannan, a formerly obscure MEP, has emerged as the anointed intellectual of the Brexit elite, The Staggers is charting his ascendancy...

When I started this column, there were some nay-sayers talking Britain down by doubting that I was seriously going to write about Daniel Hannan every week. Surely no one could be that obsessed with the activities of one obscure MEP? And surely no politician could say enough ludicrous things to be worthy of such an obsession?

They were wrong, on both counts. Daniel and I are as one on this: Leave and Remain, working hand in glove to deliver on our shared national mission. There’s a lesson there for my fellow Remoaners, I’m sure.

Anyway. It’s week three, and just as I was worrying what I might write this week, Dan has ridden to the rescue by writing not one but two columns making the same argument – using, indeed, many of the exact same phrases (“not a club, but a protection racket”). Like all the most effective political campaigns, Dan has a message of the week.

First up, on Monday, there was this headline, in the conservative American journal, the Washington Examiner:

“Why Brexit should work out for everyone”

And yesterday, there was his column on Conservative Home:

“We will get a good deal – because rational self-interest will overcome the Eurocrats’ fury”

The message of the two columns is straightforward: cooler heads will prevail. Britain wants an amicable separation. The EU needs Britain’s military strength and budget contributions, and both sides want to keep the single market intact.

The Con Home piece makes the further argument that it’s only the Eurocrats who want to be hardline about this. National governments – who have to answer to actual electorates – will be more willing to negotiate.

And so, for all the bluster now, Theresa May and Donald Tusk will be skipping through a meadow, arm in arm, before the year is out.

Before we go any further, I have a confession: I found myself nodding along with some of this. Yes, of course it’s in nobody’s interests to create unnecessary enmity between Britain and the continent. Of course no one will want to crash the economy. Of course.

I’ve been told by friends on the centre-right that Hannan has a compelling, faintly hypnotic quality when he speaks and, in retrospect, this brief moment of finding myself half-agreeing with him scares the living shit out of me. So from this point on, I’d like everyone to keep an eye on me in case I start going weird, and to give me a sharp whack round the back of the head if you ever catch me starting a tweet with the word, “Friends-”.

Anyway. Shortly after reading things, reality began to dawn for me in a way it apparently hasn’t for Daniel Hannan, and I began cataloguing the ways in which his argument is stupid.

Problem number one: Remarkably for a man who’s been in the European Parliament for nearly two decades, he’s misunderstood the EU. He notes that “deeper integration can be more like a religious dogma than a political creed”, but entirely misses the reason for this. For many Europeans, especially those from countries which didn’t have as much fun in the Second World War as Britain did, the EU, for all its myriad flaws, is something to which they feel an emotional attachment: not their country, but not something entirely separate from it either.

Consequently, it’s neither a club, nor a “protection racket”: it’s more akin to a family. A rational and sensible Brexit will be difficult for the exact same reasons that so few divorcing couples rationally agree not to bother wasting money on lawyers: because the very act of leaving feels like a betrayal.

Or, to put it more concisely, courtesy of Buzzfeed’s Marie Le Conte:

Problem number two: even if everyone was to negotiate purely in terms of rational interest, our interests are not the same. The over-riding goal of German policy for decades has been to hold the EU together, even if that creates other problems. (Exhibit A: Greece.) So there’s at least a chance that the German leadership will genuinely see deterring more departures as more important than mutual prosperity or a good relationship with Britain.

And France, whose presidential candidates are lining up to give Britain a kicking, is mysteriously not mentioned anywhere in either of Daniel’s columns, presumably because doing so would undermine his argument.

So – the list of priorities Hannan describes may look rational from a British perspective. Unfortunately, though, the people on the other side of the negotiating table won’t have a British perspective.

Problem number three is this line from the Con Home piece:

“Might it truly be more interested in deterring states from leaving than in promoting the welfare of its peoples? If so, there surely can be no further doubt that we were right to opt out.”

If there any rhetorical technique more skin-crawlingly horrible, than, “Your response to my behaviour justifies my behaviour”?

I could go on, about how there’s no reason to think that Daniel’s relatively gentle vision of Brexit is shared by Nigel Farage, UKIP, or a significant number of those who voted Leave. Or about the polls which show that, far from the EU’s response to the referendum pushing more European nations towards the door, support for the union has actually spiked since the referendum – that Britain has become not a beacon of hope but a cautionary tale.

But I’m running out of words, and there’ll be other chances to explore such things. So instead I’m going to end on this:

Hannan’s argument – that only an irrational Europe would not deliver a good Brexit – is remarkably, parodically self-serving. It allows him to believe that, if Brexit goes horribly wrong, well, it must all be the fault of those inflexible Eurocrats, mustn’t it? It can’t possibly be because Brexit was a bad idea in the first place, or because liberal Leavers used nasty, populist ones to achieve their goals.

Read today, there are elements of Hannan’s columns that are compelling, even persuasive. From the perspective of 2020, I fear, they might simply read like one long explanation of why nothing that has happened since will have been his fault.

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.