Renowned economist David Blanchflower P’13 presented “Can Europe Cut Its Way to Growth? The Austerity Question” to a packed LaRose Digital Theatre on February 29.
The presentation was co-sponsored by the Martha and Spencer Love School of Business and Sigma Phi Epsilon fraternity.
In his presentation, Blanchflower said he does not think Europe can cut its way to growth. The world economy has been hit by a once in a hundred years financial shock and “the scale of the shock has been underestimated.”
Global action worked to help “save the world.” This included coordinated actions by central banks, quantitative easing and a coordinated fiscal stimulus. However, Blanchflower said the stimulus was withdrawn too soon in many European countries.
He noted that in the previous ten years things have been made worse because risks have been underpriced, which has caused a productivity shock. The price of risk will rise, it is not temporary, and the economy may take 20 years to rebound and adjust.
Blanchflower said deficits are not the problem; governments and central banks must generate growth. Europe did not have a program to deal with growth. The U.S. has a small growth rate and unemployment is falling. It is the only success story when compared to other countries.
“This is the greater depression. Greece has to default because it has no growth strategy.”
Blanchflower feels austerity was always doomed to fail because countries still do not have growth plans. Banks are not lending and small firms cannot get credit.
He showed data from a UK lab experiment that measured consumer and business confidence. The experiment showed that consumer and business confidence has collapsed.
“Drops in confidence and spending are driven by one group – the public sector workers.”
Blanchflower concluded his presentation by saying the Eurozone crisis is far from over and that there are more surprises to come.
Blanchflower, who visited as part of the Love School of Business’ Executive-in-Residence program, also guest lectured in Assistant Professor of Economics Vitaliy Strohush’s course, Money and Banking.
About David Blanchflower
David Blanchflower is the Bruce V. Rauner Professor of Economics at Dartmouth College, visiting professor at the University of Stirling in Scotland, research associate at the National Bureau of Economic Research in Cambridge, Mass., Research Fellow at the Centre for Economic Studies at the University of Munich, program director at The Institute for the Study of Labor at the University of Bonn in Germany, and visiting scholar at the Reserve Bank of Boston. He is also the economics editor of the New Statesman, economics columnist at the Guardian and a contributing editor for Bloomberg TV.
From 2006-2009 he served on the Monetary Policy Committee at the Bank of England. He won The Daily Telegraph’s Great Britons of 2008 Award in the “Business Person of the Year” category.
Blanchflower received his Ph.D. from the University of London. He has been awarded three honorary doctorates and in 2009 was made a Commander of the British Empire.