Writing in the New Statesman, Blanchflower says the recession has been much deeper than it needed to be because the committee was “asleep at the wheel” by failing to act early enough in cutting interest rates.
Blanchflower, who was an MPC member from 2006 to 2009, consistently argued for sharp cuts in interest rates as concerns about the economic crisis grew but was voted down by other members.
He says: “The MPC missed the recession entirely. Rates were cut too late and even in early September 2008, just days before the collapse of Lehman Brothers and the secret loans to RBS and HBOS, most of my MPC colleagues were concerned only about inflation and wage-price spirals.”
Blanchflower says it is wrong for the MPC to focus on the consumer price index, as this excludes house prices, suggesting the US Federal Reserve remit “to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates” as a better alternative.
He says: “The last thing we need is for interest rates to rise any time soon. Inflation is going to jump in the short term because of the VAT increase, but will then fall back sharply.
“This MPC is not fit for purpose and should be disbanded. The big question is what it should be replaced with. That is a subject to which I will be returning.”
Blanchflower also warned against Conservative Shadow Chancellor George Osborne’s plans for immediate spending cuts if the Tories come to power.
He says: “He seems hell-bent on creating the Osborne Dip. In a speech on January 14 he announced that he would cut spending within 50 days of any election, well before any Budget. It strikes me as equivalent to a doctor determining a treatment without ever seeing the patient or knowing what was wrong with him or her.
“I gather Osborne fully expects to be the most unpopular chancellor ever, within six months of being appointed. I don’t doubt it. I am still waiting to hear which distinguished economists think that his plan to cut public spending in the depths of recession is a good idea.”