Nobel laureate economist Joseph Stiglitz, in an interview published yesterday, warned the UK not to withdraw its fiscal stimulus, saying markets are a “crazy man” that spending cuts will not tame.
Stiglitz, who won the Nobel Prize for economics in 2001 and served as an economic adviser to former US president Bill Clinton, warned that removing the stimulus too early could plunge the country back into recession.
“You’re dealing with a crazy man,” he told the Independent newspaper, referring to the current state of financial markets. “You’re asking what I can do to placate a crazy man? Having got what he wants he will still kill you.”
Official data revealed at the end of last month showed that Britain’s battered economy grew by just 0.1 percent in the fourth quarter of last year, ending the country’s deepest recession in modern history.
However, the anemic growth rate disappointed many economists because market expectations had been for stronger expansion of 0.4 percent.
Removing emergency measures introduced to combat the downturn made slipping back into recession more likely, Stiglitz said.
“If there is a premature withdrawal of stimulus, it is more likely that there will be a ‘double dip,’” he said.
A “double-dip” recession refers to a recession followed by a short-lived recovery, which is cut short by a fall back into negative growth.
The UK’s fragile economy and the inevitable cuts needed to rein in huge debts are a key political battleground ahead of an election that must be held by June, and which the ruling Labour government is tipped to lose.
Stiglitz also criticized US President Barack Obama’s plan to break up banks, saying it “doesn’t go far enough,” and said the UK’s record on the issue was better.
“What [British Prime Minister Gordon] Brown has done in terms of banks so far is far better that what the US did; he demanded better compensation for providing money, better accountability, better attempts to restart lending, than in the US,” the economist said.
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