New Nobel Winner Criticises Coalition’s Economic Policy
Writing in today’s Sunday Mirror Christopher Pissarides accuses the Chancellor of exaggerating the risk of a government bond crisis like Greece’s. If Britain did face a bond crisis it would be very serious –
But in my view Britain is a long way from such a threat, and the Chancellor has exaggerated the sovereign risks that are threatening the country.
He also makes an important point about the way the government is “taking risks with the economic recovery.” This point is being rather over-simplified in most of the coverage of this article and which follows on from a rather too simple version of the economic debate.
Prof Pissarides isn’t arguing simply that the cuts will throw us into new recession. The debate isn’t just between those who think austerity is the road to recovery and those who think it will cause disaster. It’s also possible that we will avoid two successive quarters of negative growth (the technical definition of a recession) but have a long period of growth that is too low to create jobs or prosperity. If that were to happen we wouldn’t, strictly speaking, be in a double-dip recession, but most people wouldn’t notice a great deal of difference.
Prof Pissarides’ comment about how the Spending Review relates to these possibilities is spot-on:
Economists are divided on whether the cuts will move us back to recession, the “double dip”, or just slow down the recovery. But no one doubts that the Chancellor is taking risks with the recovery.
Finally, Prof Pissarides comments on the benefit cuts are particularly important. He is often described as favouring lower benefits for unemployed people (though his views are a bit more complicated than that) but he argues that this is the worst time to cut them:
The cuts are projected to add another half to one million people to the dole. This will make it a lot more difficult for the unemployed to find jobs. It is situations like these that welfare benefits play their most valuable role.