Economist who predicted bust warns cuts could trigger '30s-style depression
Economists David Blanchflower, right, and John Fitzgerald in Dublin yesterday.
Tuesday November 03 2009
IRELAND could be plunged into a 1930s-style depression if it cuts too much from the public purse, a leading international economist has warned.
As Finance Minister Brian Lenihan considers swingeing cuts in public sector pay and pensions in next month's Budget, David Blanchflower warned last night that Ireland could repeat the mistakes made in the Great Depression if huge cuts in the public purse were made too soon.
"Moves to cut public spending or public sector wages or employment deep in a recession are a mistake and may turn a recession into a depression," he told delegates at an economics workshop at UCD's Geary Institute yesterday.
"It's exactly like it was in the '30s when people cut too soon," the British-born economist said.
"Balancing the budget is not what you do in a recession. My advice is to wait until you're out."
Mr Blanchflower is a professor of economics at Dartmouth College in New Hampshire who predicted the current recession whilst advising the Bank of England's Monetary Policy Committee in 2007.
Despite marginal growth in the US economy in the last quarter, the world is deeply immersed in the recession and will likely remain so for years, he said.
The current worldwide recession is the worst economic disaster in the past century and is "greater than the great (1929) crash," he said, warning, "There's still hurt to come."
Mr Blanchflower also warned that the US Treasury is concerned that a double dip recession could be a reality.
"I was at the the US Treasury last week and their view is that you may well see some positive growth in the next year or 18 months but after that they are very worried . . . that the US will go back into recession."
"The crucial part of the recession is there will be a huge lost generation," he added.
"Solving youth unemployment is the most pressing problem governments are facing."
- Allison Bray
Irish Independent
