Economix Blog: Former Bank of England Official Criticizes British Policies

LONDON – Adam S. Posen, the former Bank of England policy maker, is breaking his silence to criticize the British government’s austerity plan, and he is not mincing words.

The government’s economic policies have “eaten away at British economic capabilities,” are “misguided” and left Britain’s economy “malnourished,” Mr. Posen wrote in the January edition of Prospect magazine.

Mr. Posen, who left the Bank of England’s monetary policy committee in August and is expected to take over as president of the Peterson Institute for International Economics in January, said he kept his opinions about Prime Minister David Cameron’s austerity plan to himself while he was a central banker. But now, it was “past time” for him to speak up.

In the article, Mr. Posen admonished the government for stubbornly sticking to deficit reduction as a priority while failing to address a shortfall in investments.

“For two-and-a-half years, the coalition government’s economic policies have focused on the wrong narrow goal, been self-defeating in pursuit of that goal, and in so doing have eaten away at British economic capabilities and confidence,” Mr. Posen wrote.

He added that it was not enough for Mr. Cameron and George Osborne, the chancellor of the Exchequer, “to claim that they have done what they promised to do. Their policies have left the British economy malnourished, and indeed made parts of it quite ill.”

Mr. Posen proposed five steps to help the British economy. The government, he said, should find ways to encourage companies to invest the large cash piles they accumulated during the crisis.

He also suggested increasing competition in the domestic banking sector by selling parts of the stakes the government continued to hold in banks like the Royal Bank of Scotland and Lloyds Banking Group. And the government should create a public bank especially for lending to small businesses, he said.

“There are alternatives available, and the British government should switch to these now,” Mr. Posen said.

Article source: http://economix.blogs.nytimes.com/2012/12/12/former-bank-of-england-official-criticizes-british-policies/?partner=rss&emc=rss