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Don’t shoot the messenger, Mervyn

The governor of the Bank of England has had a terrible recession. The WikiLeaks revelations only add

Unlike ping-pong, football isn't coming home any time soon. According to some, Russia doesn't deserve to host the 2018 World Cup. We just sound like sore losers. Most of the post-decision debate was about the unfairness of the bidding process and corruption. Roger Burden, acting head of the FA, stamped his foot and said he wasn't going to play any more. There was little discussion about the quality of England's bid - or lack of it - and the riot that took place at the Birmingham City v Aston Villa game a day earlier. The Panorama programme presumably didn't help matters, either.

Qatar, which will host the 2022 tournament, is an oil-rich country about half the size of this year's Ryder Cup host, Wales. Where is it going to build the new stadiums - in a row, right next to each other? The temperature out there between June and September can reach up to 50° Celsius. The GDP per capita in Qatar is more than double that in the UK and five times higher than in Russia, so I suppose it could afford to hold the whole competition indoors or air-condition the desert. We can't even afford to grit the roads.

David Cameron would have been better off spending three days learning some economics than squandering his time in Zurich on a doomed World Cup bid. He should have sent Nick Clegg.

They call me Dr Doom

A similar urge to "shoot the messenger" resounded in responses to an article I wrote for the Guardian, in which I expressed my outrage that the governor of the Bank of England, Mervyn King, had become too involved in the coalition government's dangerous economic strategy. In doing so, he has compromised the Bank's independence, which, in my view, means he is damaged goods and should go. How could he be trusted to give neutral advice?

King has had a terrible recession, making one policy U-turn after another. Remember all that moral hazard nonsense with Northern Rock? He also believed that the UK and US economies had become decoupled - bizarre, given the increasing level of integration in the global economy over the past decade. The problems in the United States were always heading in our direction. King's inability to spot the biggest financial crisis in a century was due to bad economics and poor judgement. Why would anyone believe he is the font of all economic knowledge? I don't.

In the Independent on Sunday, Margareta Pagano criticised my "inflammatory outpourings" - she called me an "attack dog", a "troublemaker" and "Dr Doom". Sounds like home. I prefer my margaritas on the rocks with salt.

Pagano suggested: "It's time Blanchflower looked across the Channel to see what happens when countries don't get their debts under control." I am unclear on what lesson I am supposed to learn. As I have said on many occasions, the UK is not Greece, Spain or Portugal. Our debt is longer-dated than theirs, which suggests we roll it over much less frequently. We also have an independent central bank and a free-floating exchange rate, which we have been able to depreciate. Bond yields were low during the last government's time in office - a sign that investors regarded Britain as a safe haven - and didn't move at all when there was a possibility of a Lib Dem-Labour coalition. The chance of the bond-market difficulties seen in peripheral European economies, stuck in the monetary union, seems remote in the UK.

The lesson I draw from across the Irish Sea is that an austerity programme that stunts growth simply will not work. The speed at which the deficit is paid off is important: too quickly and growth collapses; too slowly and the markets turn on you. The bond vigilantes are at Dublin's gates once more, demanding increased returns on their investments as growth has turned negative again and unemployment has risen over 14 per cent.

Pagano also criticised me for arguing that the UK needs a dose of inflation to help deal with the problem of negative equity in the housing market and to get interest rates back to normal levels so they can be cut when the next shock comes along. But what exactly is her strategy, should growth falter? I'm afraid I am not going to stand quietly in the corner and watch her lot make a mess of things.

Natasha Brereton in the Wall Street Journal had it spot-on. She argued that King's endorsement of the coalition's economic plans in May's inflation report has made him "a ready scapegoat, should their plans turn out to have been too ambitious or, indeed, not drastic enough . . . It is no ideal situation for the head of a central bank to place his future and implicitly that of monetary policy under the thumb of the authorities." Precisely. It is King's flawed judgement that is the issue, not his credible views that George Osborne and Cameron lack experience and depth, deal in generalities and tend to think in terms of political rather than economic impact.

Seize the alternative

I continue to take the view that, while the deficit must be dealt with, it should not be by a date certain, but based on the growth performance of the economy. That is because econ­omic cycles tend to be longer than political cycles. Don't believe anyone who says that there is any justification in economics for paying off the deficit during the course of a parliament, or any other random time period. There is a realistic Keynesian alternative to the Osborne/King strategy of slash and burn. Now is not the time to remove the fiscal stimulus, which has helped to drive the recovery.

The latest Markit/CIPS purchasing managers' index for UK services showed that growth slowed further in the sector in November, as market uncertainties persisted. Confidence remained historically low and employee numbers fell for the second successive month. Companies were hesitant about committing to new contracts. The British Chambers of Commerce has lowered its growth forecast for 2011.

In the US, the unemployment rate unexpectedly increased from 9.6 per cent to 9.8 per cent. That worries me because I still can't explain why the US has done so much worse on the jobs front than the UK, despite a much smaller peak-to-trough fall in output. A plausible story is that the US has taken the pain early, but the UK has yet to do so and there is more hurt to come. This would be a much bigger problem for the coalition than tuition fees.

David Blanchflower is a labour economist and a professor at Dartmouth College, New Hampshire, and the University of Stirling

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

This article first appeared in the 13 December 2010 issue of the New Statesman, The radical Jesus