DAVID BLANCHFLOWER: HE WAS RIGHT

Blanchflower’s Predictions

In the Guardian last week (Thursday 19 March 2009), David Blanchflower reminds us that, a year ago, he told the Treasury Select Committee that 'something horrible might come’. He was one of the very few to predict a serious recession.

He was largely ignored. It took the Bank of England’s Monetary Policy Committee six months (after his warning) to even start cutting interest rates. Yet, well before then, it was clear to many of us (especially those losing jobs) that there was an economic crisis deepening by the day.

Blanchflower’s Guardian article is headed ‘Now for the Jobs Stimulus’ He expresses the fear, now shared by many, that, unless the government acts speedily and decisively, unemployment will exceed 3 million.



Labour’s Opportunity: £100 Billion Stimulus


In his article, Blanchflower is, in effect, arguing for government expenditure along the lines I have proposed in earlier Blogs. Gordon Brown and Barack Obama, we are told, will argue for a worldwide fiscal stimulus at the G20 meeting in London next month

Blanchflower’s emphasis is on creating jobs, and taking steps to prevent long-term unemployment, especially amongst young people,

I would add (and I have no reason for thinking that Blanchflower, Brown and Obama would disagree) that the action taken should also aim to create a fairer, and more equal, society.

Government Borrowing and Repayment

For a package on this scale it is obvious that there would be a major increase in government borrowing. However, this is a problem only if there is no clear strategy for repayment

Such a strategy should be developed in a context of creating greater equality. This means higher income tax for people earning over £80,000 a year, with progressively higher rates.

£80,000 45%

£110,000 50%

£150,000 55%

£200,000+ 65%

In this context, part of the spending should be used to take at least 1,000,000 of the lower paid out of tax brackets and increase unemployment benefits. For obvious reasons, this extra income would be spent - a stimulus to the economy.

The second element of the repayment strategy should be a windfall tax on companies with excessive profits (e g utilities and oil companies).

The third element should be cuts to expenditure on defence and government quangos (by abolishing them).


This is Labour’s opportunity. A recent opinion poll (also published last week) indicated that 82% of respondents supported higher taxation for the better off.