By Matthew Barrett
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The New Statesman magazine has a big economic story in this week's edition, which seeks to suggest a Plan B for George Osborne. The NS' Alice Gribbin writes: "nine of the world's leading economists — including a Nobel prize winner, one of the Chancellor's own advisers and three former members of the Monetary Policy Committee (MPC) — write open letters to the Chancellor, George Osborne, urging him to adopt alternative and radical policies to stimulate growth and create jobs."
Let's see what they propose:
- Christopher Pissarides: "Cutting VAT back to 17.5 per cent, or reducing National Insurance contributions for those on low incomes, will revive job creation and reduce unemployment. "
- Sushil Wadhwani: "One good place to start is with the textbook example of printing money to finance consumption – sending every adult in the country a voucher that can be spent in the next three months."
- Jeffrey Sachs (an advisor to George Osborne): "I am strongly supporting the call for a Financial Transactions Tax, or FTT, which I believe would add efficiency to the global financial system by reducing destabilising speculation."
- David Blanchflower: "I suggest you increase the number of university places by 100,000 at once – the universities have a capacity. You could even insist that the extra places be primarily in science and engineering, which would help future growth. Second, give a tax holiday for two years on employer and employee National Insurance contributions for anyone under the age of 25."
- Lord Skidelsky: "We need a proper national investment bank, with more capital and the ability to raise private money … You should use part of the proceeds of the sale of government shares in bailed-out banks to increase the capitalisation of the national investment bank."
- Jonathan Portes: "…reverse the damaging restrictions the government has introduced on skilled immigrants and students from outside the European Union."
- Ann Pettifor: "We need public works programmes that will mobilise a "carbon army" of "green-collar workers" and offer major incentive to environmentally friendly businesses."
- George Magnus: "The Bank of England could get involved in direct lending to SMEs and to the government, so that the latter could fund infrastructure and other programmes to boost employment."
- Christopher Allsopp: "My preference would be public investment for infrastructure, which is sorely needed and could be financed, currently, at negative real interest rates. How about a recovery fund, financed by index-linked gilts?"
Some of the calls for tax cuts are valid proposals, and could feasibly stimulate some consumer demand. However, any economic benefit gained from VAT cuts would be overshadowed by such proposals as massive infrastructure "investment", simply printing money to hand out every month, increasing university capacity by 100,000. Most economically damaging would be a financial transactions tax that would punish the City, causing successful companies to move overseas, and greatly diminish our status in the global economy. The proposals for a "carbon army", and the desire to create "green-collar workers" sound downright sinister.
This doesn't read like a series of proposals that could form the basis of a "Plan B" – a Keynesian alternative. They read like a manifesto for economic ruin, based on more borrowing in order to fund wasteful spending and utopian schemes, while punishing Britain's banking industry.