Forget cuts and keep spending, Brown told

Nobel-winning economist: fiscal stimulus is more important than reducing deficit

One of the world's leading economists has urged Gordon Brown to reject "fiscal fetishism", defy the markets and maintain, or even extend, the fiscal stimulus of the British economy.

Joseph Stiglitz, who won the Nobel Prize for Economics in 2001 and has served as chief economic adviser to President Clinton and chief economist at the World Bank, warned that the financial markets were like a "crazy man" that could not be appeased with cuts to public spending.

"You're dealing with a crazy man. You're asking what I can do to placate a crazy man? Having got what he wants he will still kill you," he said.

In an exclusive interview with The Independent, Mr Stiglitz rejected the idea, put forward by David Cameron, that some symbolic trimming of the budget deficit in the current year might regain the confidence of the financial markets. He also said that it was "unconscionable" for the ratings agencies to threaten to downgrade Britain's creditworthiness, given their poor record in the crisis. "Fiscal fetishism is really dangerous," he said.

If the financial markets refused to buy British government bonds, or gilts, as Mr Cameron has suggested they soon might, the Bank of England could buy them instead, Mr Stiglitz said, as it did during its recently paused programme of quantitative easing, which mopped up about £200bn of gilts.

His intervention adds to the growing criticism of Mr Cameron's economic policy and will be seized on by Gordon Brown as evidence that Labour's policies are being backed by the world's leading economists.

Mr Stiglitz said that Mr Brown should make plans for how he might administer a further boost to the economy, in case the economic recovery proved to be even slower. "The likelihood is of a marked slowdown from current growth, which is very weak," he said. "Whether that means negative territory or stagnation will depend on what the Government does. If there is a premature withdrawal of stimulus it is more likely that there will be a 'double dip'."

He added: "You want to show a sensitivity towards the deficit but also sensitivity towards the timing [of a withdrawal of stimulus], and the fact is that recovery is not robust."

Mr Stiglitz said that European governments should offer the Greeks and other economies currently "under attack" much more support, to help restore confidence in their efforts to restore stability and help prevent the financial crisis spreading.

Mr Cameron has argued that comparatively small, but immediate reductions in public spending and the budget deficit, perhaps as small as £1bn out of a total deficit of around £175bn, could persuade the markets that an incoming Conservative government was getting the public finances under control. Mr Stiglitz however, stressed the continuing threats to recovery. The UK has emerged more slowly and more feebly than any other advanced economy from recession, and must be presumed to be the nation most at risk of a relapse into recession.

Mr Stiglitz, who dined with the Prime Minister and the Chancellor yesterday evening, said that the current Obama plan to break up the banks and restrict their ability to undertake proprietary trading – that is, trading on their own accounts – "doesn't go far enough". He criticised the US President for "muddling through" his response to the financial crisis, but said he was encouraged by the most recent developments in reforming regulation. However Mr Obama wants to extend the scope of US financial regulation both in the US and abroad to encompass the types of securities that are traded. Some especially complicated securities – which the boards of the banks that issued them famously couldn't understand – were held to be partly at fault for spreading and escalating the scale of losses seen during the credit crunch.

The boost to the US economy from President Obama's near $800bn package of tax breaks and public spending plans was also criticised by Mr Stiglitz for taking insufficient account of the decline in spending by individual states, which he argues has negated much of the federal initiative.

The British Government, which has rejected the Obama plan, was nonetheless warmly praised by Mr Stiglitz for its record: "What Brown has done in terms of banks so far is far better than what the US did; he demanded better compensation for providing money, better accountability, better attempts to restart lending, than in the US."

Sport
The sun rises over St Andrews golf course, but will it be a new dawn for the Royal and Ancient Golf Club?
sportAnd it's Yes to women (at the R&A)
Arts and Entertainment
Friends is celebrating its 20th anniversary this year
tvSeries celebrates 20th anniversary
Sport
Yaya Touré (left) and Bayern Munich’s Spanish defender Juan Bernat
footballToure's lack of defensive work is big problem for City
Voices
voicesApple continually kill off smaller app developers, and that's no good for anyone
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Sport
Wembley Stadium
footballNews follows deal with Germany
Arts and Entertainment
A spell in the sun: Emma Stone and Colin Firth star in ‘Magic in the Moonlight’
filmReview: Magic In The Moonlight
Sport
A 'Sir Alex Feguson' tattoo
football

Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Life and Style
life

News
ScienceGallery: Otherwise known as 'the best damn photos of space you'll see till 2015'
Life and Style
fashion

Bomber jacket worn by Mary Berry sells out within an hour

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Volunteer your expertise as Trustee for The Society of Experimental Biology

Unpaid Voluntary Position : Reach Volunteering: Promising volunteer Trustee op...

Email Designer

£30000 - £35000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Psychology Teacher

£110 - £130 per hour: Randstad Education Reading: Psychology Teacher needed fo...

Food Technology Teacher

£85 - £120 per day: Randstad Education Cheshire: Randstad Education are curren...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week