Gordon Brown should forget about reducing the budget deficit and continue spending to speed up Britain’s recovery from the recession, a leading economist has said.
Professor Joseph Stiglitz, a former World Bank chief economist and senior adviser to Bill Clinton’s administration, urged the prime minister to ignore the financial markets and make plans for a further boost to the economy in case Britain relapsed into recession.
The likelihood is of a marked slowdown from current growth, which is very weak
In an interview with The Independent, the Nobel Laureate dismissed David Cameron’s suggestion that the confidence of the financial markets might be regained by comparatively small cuts in public spending and the budget deficit.
He warned that the markets were like a “crazy man” that could not be appeased with cuts to public spending.
He also said that it was “unconscionable” for the ratings agencies to threaten to downgrade Britain’s creditworthiness, which would mean the government would have to pay more to borrow money. “Fiscal fetishism is really dangerous,” he said.
Professor Stiglitz said that given Britain’s feeble return to growth, Mr Brown should plan to keep up, or even extend, the fiscal stimulus.
He said: “The likelihood is of a marked slowdown from current growth, which is very weak. 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.”