Posen urges Coalition to ditch austerity measures
Self-defeating strategy has left economy malnourished, says former MPC man
Wednesday 12 December 2012
Chancellor George Osborne should ditch an austerity programme which has resulted in a "malnourished" British economy, a former Bank of England rate-setter warned today.
American Adam Posen, who served on the Bank's Monetary Policy Committee until September, spoke out after years of frustration over the Coalition's "self-defeating" deficit-cutting strategy and failure to encourage investment.
Mr Posen, who stepped down to become president of the respected Peterson Institute for International Economics next year, was a consistent supporter of quantitative easing during his time on the MPC, winning over his colleagues in October 2011.
The outspoken criticism is an embarrassment for the Chancellor coming so soon after Mr Posen's departure from the Bank. Writing in Prospect magazine, Mr Posen said: "For two and a half years, the Coalition Government's economic policies have focused on the wrong narrow goal, been self-defeating in pursuit of that goal, and in so doing have eaten away at British economic capabilities and confidence. It is past time for me, and far more importantly for the Chancellor, to say so."
Mr Posen attacked the Coalition for failing to encourage capital investment, in contrast to international rivals such as Germany, France, Japan, and the United States. He called for the Chancellor to stimulate the supply side of the economy as well as supporting demand through major infrastructure projects.
He set out a five-point plan to revive the economy with "aggressive" tax credits for business investment, which has fallen far below the expectations of the Government's Office for Budget Responsibility fiscal watchdog. He also called on the Government to create a far more diverse credit market to enable small businesses to rely on more sources of funding than just banks.
He also labelled the lack of competition in the banking sector in the UK market as "extraordinary", as well as calling for the creation of a small business bank. The Chancellor should ratchet up spending on major infrastructure projects, Mr Posen argued.
He warned: "It is not enough for Messrs Cameron and Osborne to claim that they have done what they promised to do. Their policies have left the British economy malnourished, and indeed made parts of it quite ill. There are alternatives available, and the British Government should switch to these now."
The economist also had a broadside for the Bank for "scaremongering" over the need for spending cuts, adding that the committee risked feeding "the policy defeatism and austerity cycle" damaging the economy.
The Treasury declined to comment on Mr Posen's analysis, although sources pointed to the Chancellor's temporary two-year rise in investment allowances to £250,000 in the autumn statement.
* Spencer Dale, the Bank of England's chief economist, warned of more wage pain to come after official figures showed average growth in salaries remains at 1.8 per cent. This is in effect a real-terms cut for workers when the consumer prices index inflation benchmark stands at 2.7 per cent.
Mr Dale said wages had fallen 15 per cent in real terms compared with the pre-crisis trend. He warned: "Although real wages have fallen sharply, it seems likely there is still a little further to go in adjusting to the shocks that we have seen so far."
- 1 Amy Winehouse statue unveiled in Camden
- 2 Lego breaks out of the toy box and heads for the gallery
- 3 George Galloway on Scottish independence: The political class is doing what Hitler couldn’t – destroying Britain
- 4 Headaches, fry ups, and hair of the dog - why do we get hangovers, and is there such thing as a 'cure'?
- 5 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
Daniele Watts: Django Unchained actress detained in Los Angeles after being mistaken for a prostitute
George Galloway on Scottish independence: The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
Scottish independence: Britain faces 'constitutional crisis' at next election
£23m Birmingham cycle scheme is attacked by Tory councillor for not catering to the elderly
iJobs Money & Business
£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...
Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)
£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...