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?"