I’m not playing politics, says David Blanchflower

Is David Blanchflower, the Bank of England's 'wise man' who predicted the severity of the recession and prescribed the correct medication months before anyone else, set to be spurned yet again?

As a member of the Bank's monetary policy committee which sets interest rates, Blanchflower was one of the few people in the country to see the onset of the credit crunch, and called for a reduction in rates from October 2007. His colleagues on the committee only came round to his way of thinking in August 2008, when the damage had already been done to the British economy.

So when the modern-day Cassandra begins warning that the putative policies of an incoming Tory administration would be disastrous for the British economy, it is understandable that people take him seriously.

Blanchflower has been all over the airwaves and newspapers during the past seven days, ever since George Osborne promised at the Tory conference that he would roll back much of the macro-economic policy that Blanchflower helped put together at the Bank of England, notably the policy of quantitative easing which the Bank began in March 2009.

In Monday's Daily Express he called the Cameron-Osborne plans "probably the most woefully inept set of economic proposals I have ever seen", having suggested in the Guardian on Friday that the country could fall into a new Great Depression if Conservative cut public spending in a recession. He foresaw social unrest and the return of the soup kitchens. In the Mirror on Saturday he went further, saying that Osborne and David Cameron "show absolutely no understanding of basic economics".

Indeed, he is rapidly becoming the Labour government's best attack dog - though he emphatically denied to The First Post this week that he was acting for party political reasons. "I have no political affiliation," the 56-year-old economist said from Dartmouth College, New Hampshire where he teaches. "None whatsoever. This is an argument about wise economics not about politics."

Blanchflower, nicknamed Danny after the famous Spurs footballer, agrees with Osborne that the burgeoning public debt must be dealt with - but all in good time. "Making a plan to pay off the public debt is, of course, sensible. But now is not the time to start making those payments."

Blanchflower, who teaches at Stirling University as well as Dartmouth, used an example from his day job to illustrate why the Tory policy is so risky. "What I always say to my students is, when you put a policy prescription in place, what are the downside risks? What could happen if I'm wrong? If the risk is that you put the economy into a death spiral, then it is not a risk worth taking."

He is an advocate of encouraging a period of "benign inflation" in Britain (it fell to 1.1 per cent on Tuesday, its lowest rate for five years).

"If you have three million people in negative equity, what do you do about them? They cannot move or sell their homes. One way to get them out of that hole is to allow inflation to solve the problem [by increasing the value of their properties]."

He also wants the government - whether Labour or Tory - to introduce measures to bring down the high youth unemployment figures. Radical solutions are needed, he says, including raising the school leaving age to 18 and possibly paying benefits to interns.  

"These are special circumstances - we are in the worst recession in 100 years - and we need special measures to deal with it. When things are back to normal, then we can behave normally again."

Having left the Bank's monetary policy committee in June this year, Blanchflower has become left-leaning New Statesman's economics columnist, encouraging more allegations of political bias from some on the right. But his views on the economy hold considerable sway in the City.

A banking executive told The First Post: "I don't really know who disagrees with him. He went out on a limb by calling for a dramatic cut in interest rates when the other MPC members were putting them up. He saw the tsunami coming when they didn't."

Unlike the usual pointy-heads at the Bank of England, Blanchflower is a well-rounded individual whose previous works have concerned such topics as the economics of happiness and the value of a good sex life.

With winter approaching, he'll no doubt be spending his spare time in New Hampshire snowmobiling with his good friend Bill Bryson; the author once wrote a short story about their exploits together. ·