100 leading economists tell George Osborne: we must turn to Plan B

[ttosca]

Chancellor must change strategy and enact emergency measures to avoid a double-dip recession, experts say

A hundred leading economists have made an impassioned call for the government to step back from the brink of a new economic crisis and back a Plan B to save existing jobs and create new ones, amid growing fears of a double-dip recession.

In a letter to the Observer, the umbrella group of distinguished experts from across the country argue that the chancellor must rethink his strategy and enact emergency measures to kickstart growth and save the UK from growing unemployment and a further fall in living standards.

Condemning the intransigence of the chancellor, George Osborne, as he pursues the coalition government's austerity programme, the economists write: "It is now clear that Plan A isn't working. Wave after wave of economic figures? have all concluded the British economy is faltering." And they warn: "Doing nothing is not an option."

They call on the government to consider a host of measures proposed by a body of academics and economists brought together by the left-leaning thinktank Compass. The proposals, in a manifesto entitled "Plan B: a good economy for a good society", will be launched in London on Monday. They include:

■ An immediate halt to cuts, to protect jobs in the public sector.

? A new round of quantitative easing to finance a "Green New Deal" to create thousands of new jobs.

? Benefit increases to put money into the pockets of those on lower and middle incomes and give a boost to spending.

? A financial transaction tax to raise funds from the City to pay for investment in transport, energy and house building.

The call for a new approach comes as the UK economy's sluggish recovery shows signs of stalling altogether amid the fallout from the eurozone crisis. Consumer spending has fallen as wages fail to keep up with inflation, and low to middle-earners have endured the biggest squeeze on living standards for decades.

Ministers are bracing themselves for further bad news this week with the publication by the Office for National Statistics (ONS)of the latest growth statistics. It is anticipated that GDP will have grown by just 0.3% between July and September, representing a modest increase on the 0.1% in the previous quarter.

The letter from the economists, including former European Investment Bank consultant Dr Ha-Joon Chang urges the government to engage with new ideas on stimulating growth, and warns the chancellor that his policies may push the country into further deficit rather than erase the national debt.

It states: The UK jobless total is now at its highest for over 17 years, while growth has all but stalled. Despite the increasing risk of a double-dip recession, which will inevitably result in even greater unemployment and falling living standards, the government refuses to change course. Indeed if the government persists with Plan A the deficit could rise not fall. It's time for a Plan B.We urge the government to adopt emergency and commonsense measures for a Plan B that can quickly save jobs and create new ones. An emergency recovery plan could include reversing cuts to protect jobs in the public sector, directing quantitative easing to a green New Deal to create thousands of new jobs, and increasing benefits to put money into the pockets of those on lower and middle incomes and thus increase aggregate demand. This could in part be paid for by the introduction of a financial transactions tax.Last night, a Treasury spokesman said the next stage of Osborne's plan would be announced next month. "The government has always said that the recovery would be challenging, and the current global uncertainty, in particular in the eurozone, is making it more so," he said. "The government is implementing the plan for growth as planned, including a reduction in business tax, reducing red tape and reform of the planning system." the source added, saying the next stage of the government's plan would be outlined in November when the chancellor delivers his autumn statement to the Commons.

www.guardian.co.uk/politics/2011/oct/29/george-osborne-plan-b-economy

OK maybe I should have said that common sense Economics is more relevant than political wrangling at the moment - I didn't mean politics wasn't important! Many apologies.

I think Morebeta's post was very balanced and true.

The current crisis is unique in that it is government debt which is the cause of the loss in confidence. After all, that is essentially what a recession is. A loss of confidence in markets.

Specifically there is a loss of confidence that western sovereign governments are spending beyond their means and may not be able to pay back what they've borrowed/borrowing.

So to suggest that the way out of the crisis is to borrow more and spend more is simply stupid. Only an idiot would suggest that.

It's like suggesting that the best way to cure a patient who is poisoned is to give them some more poison. All you do is kill the patient quicker.

And yet if you analyse past recessions, the picture emerges that austerity does not result in improved growth, and greater growth is associated with increased borrowing. For each recession or downturn, the picture is different, but it is simply wrong to say that it is idiotic to borrow more at a time like this. Past history does not support a statement like that.

And neither does the current economic situation. There is no evidence that Plan A is working. In fact there is ample evidence that, even on it's own terms, it's making matters worse.

So only an Idiot, or an Ideologue, would refuse even to consider a Plan B.

its blooming phone

LOL - there are only 98 names on that list . And many of them aren't even Economists. You've gotta love the Observer.

Even the coalition realises that their cuts are harming the economy and stagnating growth:

Coalition pledges £1bn on 100 projects to kickstart the economy

Tens of thousands of new jobs will be announced today as David Cameron ?strains every sinew? to get the sluggish economy moving.

www.telegraph.co.uk/news/politics/8858830/Coalition-pledges-1bn-on-100-projects-to-kickstart-the-economy.html

---

It is not a co-incidence that the UK's economic growth is poor compared with most of europe, and is the second lowest, after Japan, from the OECD 7.

Loving this 'spending beyond their means' line. Spending promises were matched by the Tories in the election. Only after that did we learn of Brown's global power to destroy with a glance all that was good.

An update on this list. There are actually 97 names (one was listed twice ).

Fact checking website FullFact estimate that 64 of the 97 are full time economists.

fullfact.org/blog/the_observers_100_leading_economists-3082

You've got to admit, though, that the opinions of even just 64 full-time economists are worth something

Plan A isn't working? And I still want to know what Plan B is and what good it will do. Please can some enlighten a confused soul like me?

Yesterdays news that the economy grew by 0.5% in the last quarter is not all that bad. OK it's not full blown recovery but it's steady as she goes and I'd much rather have a slow and sustainable recovery than another boom and bust as we have seen repeated time and time again over the past few decades, which listening the Ed Balls is what he would prefer it seems.

The one area the government should invest/encourage is building, particularly housing both private & social. Once the building trade is growing then this normally has a knock on effect to the rest of the economy.

They've already started Plan B: credit easing, quantitative easing etc.

A while ago, there was a statistic floating around that physics-based industry makes more money for the UK than finance does. I don't see anybody rushing to say we should be expanding physics-based industry, yet we're told the banking status quo must continue. It's ridiculous, absolute wilful blindness.

The point is, it is NOT 'what we do' - it is one aspect of our industry and there are others which bring in more money.

Moreover, it's one industry whose tastelessness sits very, very badly with the populace now. Let's have some focus on more honest and innovative industry.

(I'm not focusing on the tax, btw. Not qualified to say whether or not it's a good idea.)

I agree Custardcake. It might be somewhat unpalatable to many, but it's an inconvenient truth that the UK's economic well-being is closely tied to the financial and professional service industries.

As you point out, the more developed an economy, the less able it is to compete in manufacturing industry. Even Germany's expertise is increasingly in design rather than cost efficient manufacturing.

For many reasons (English language, time-zone, historical) we have a strong competitive advantage in financial and professional services and, whatever their rhetoric, none of our political leaders will want to severly damage this.

That's not to say that avoiding another UK bank bailout shouldn't be the first priority.

Oh, what a quandry. We have given the banks all our money to bail them out, and geaorge osbore says we must give them more money so that the banks do not charge us more.

At last some sensible people have pointed out this nonsense. Certainly a Better plan is needed.

Yeah, the Tory scum are doing such a great job with our economy that we have a 50% chance of entering a recession in the next few months:

-- Near 50% chance of U.K. sliding into recession by end of 2012

-- Chance of recession rises to 70% if euro-zone crisis isn't resolved

-- Treasury says U.K. economy not immune from global uncertainty, instability

(Adds treasury reaction and details.)

LONDON (Dow Jones)--The U.K. economy is as likely as not to fall back into recession in the coming months, with the risk rising to 70% if the euro-zone crisis isn't resolved promptly, a respected think-tank said Thursday.

The National Institute of Economic and Social Research said it expects growth to slow to 0.9% in 2011, and again to 0.8% ...

online.wsj.com/article/BT-CO-20111103-703558.html

Chicken - it would be a quandry if that were true. In fact we have not given the banks "all our money" as you say. The reason we have so much debt is largely due to the fact that we spent too much money. Not on bank bailouts - it happened long before that. We spent too much public money on some very nice and very worthwhile causes and a few more dubious things that we simply couldn't afford to do and then we (when I say 'we' I mean Gordon Brown) sold off our gold reserves at bargain basement prices too. The banks tipped us over the edge certainly but we were storing up trouble long before that.

This is wrong. Plain and simple.

I don't know how many time I need to keep repeating myself, but there is a lot of willful ignorance or lying by some people on these boards.

Firstly, we don't have 'so much debt'. The UK debt is at a historical low. It has very recently (past few years) jumped because of the 2008 financial crisis:

www.economicshelp.org/blog/334/uk-economy/uk-national-debt/

Since 2008, National Debt has increased sharply because of:

* Economics recession (lower tax receipts, higher spending on unemployment benefits) The recession particularly hit stamp duty (falling house prices) income tax and lower corporation tax.

* These cyclical factors have exposed the underlying structural deficit

* Financial bailout of Northern Rock, RBS, Lloyds and other banks.

Secondly, we have a deficit problem, not a debt problem. The deficit problem was also caused by the financial crisis. The crisis precipitated a recession, which drastically reduced tax receipts. It also meant that welfare costs increased massively since so many people lost their jobs. The Tory cuts are making the problem worse again by cutting public spending, further putting people out of work and in to welfare.

The UK's deficit before the financial crisis (2007) was %3.1. This is a high figure, to be sure, but it is not a crisis.

secure.flickr.com/photos/hmtreasury/5260056945/lightbox/

This figure %3.1 percent is just over the EU amount over which a deficit is considered 'excessive'. As you can see from the chart, is it not particularly historically high.

---

The people who blame the deficit problem on 'overspending' willfully lying in order to blame the crisis on Labour in a bid to support the Tory scum. In reality, the crisis we face is not the result of overspending, as we would still be in a recession and still be experiencing a deficit crisis even if we had a perfectly balanced budget on the eve of the crisis.

I've just been catching up with R4's excellent series "Stephanomics" [awful name, though].

The analysis of the UK economy over the last 10 years was pretty brutal. Basically we relied too heavily on the Finance industry and replaced real economic growth with massive increases in personal and government debt.

As a consequence we neglected true innovation and growth in other industry sectors.

• It appears we are suffering from an economic and political 'double-whammy'. Ten plus years of Labour's failures to nurture our private sector, and now a government who sees shrinking the public sector as a solution to our economic problems. Whilst the private sector isn't jumping into the void created by the shrinking state, as quickly as we need it to.

However, Labour did invest heavily in Education and measures to improve equality (reduce proverty). By definition, these investments should have long term benefits for our economy.

According to the program, the only sustainable way out of our economic crisis is an large innovation boom in the western world.

Certainly food for thought.....

Might we need a few educated people to crack on with this innovating? Didn't the Condems just put up fees, scrap EMA, cut university funding, goad teaching unions into strike action?

Julia - well we've had several years of school and Uni graduates who have benefited under Labour, & although youth unemployment is high - most of them are now entering the job market.

Labour didn't invest in higher education in the same way as they did primary and secondary. The plus side of the tuition fee rise, is that it should focus money on more economically productive areas.