Exclusive: Reasons to be cheerful? Not many

In his lecture in Edinburgh on Tuesday evening, Blanchflower, the leading "dove" on the nine-member monetary policy committee of the Bank of England, was not exactly cheerful.

His message was that the UK could follow the United States into a full-blown recession unless there is an urgent cut in interest rates.

Not exactly cheery and not the view of every economist or, indeed, of the "hawks" on the MPC, who have not followed his lead as he voted twice for a 50 basis point cut in interest rates this year.

So, is he a professional pessimist? The man who has been described as a "happiness guru" and is rather unimaginatively is nicknamed "Danny", denies it.

"I don't think I was necessarily saying I am being pessimistic. What I tried to lay out was a scenario that suggested we were at a tipping point."

Tipping towards a recession, in other words, because of the "scary similarities" between the UK and the US economies, including falling house prices, weakening consumer confidence and a slow-down in the labour market.

In an interview with The Scotsman after a round of meetings to take the temperature of the Scottish economy, he explains what some may have seen as his apocalyptic economic scenario.

"I have simply tried to look at the data and suggest there are potential risks to the downside which we need to be careful of.

"That's a risk to inflation in the medium term and I think people are focused too much on inflation in the short term."

The job of the MPC "is to keep inflation in the medium term down". He adds: "I just wanted to open the debate and have people think about those kinds of questions."

But there is hope.

"I did say it's not too late. We can reverse this. These are things we need to put on the table. In the last few days the data seem quite horrible.

"The worry is if you see that you certainly would not want to ignore it. I don't think I am trying to be pessimistic, I am just laying out the case."

Yet it is clear from the MPC minutes that not all of his colleagues agree? Why do they take a different view?

"You have to ask them."

A sharp riposte, born of the discipline imposed by the weighty responsibility of sitting on the body that sets UK interest rates.

However, Blanchflower clearly believes he is right, and the implication is that his fellow more hawkish MPC members are wrong.

He believes he has an added insight as he splits his time between teaching in the US and the UK, including at Stirling University.

"My voting record is clear. I think I have been in a pretty good position. Over the last year or so I have talked about the US… lots of other people said the US wasn't going into recession.

"For a long time I have been saying I don't think that's true. I have called this for a long time."

He denies that he implied in his speech that inflation was not a problem.

The Governor of the Bank, Mervyn King, was "completely right" to say they had a really tough balancing act to go through when there had a very big shock from the credit market.

Blanchflower outlines the problems: the big shock from the credit market, a reduction in the supply of credit, high Libor rates for interbank lending and the "externally-given shock" to commodity prices and oil. "I am not suggesting that those are not important and tough things but we also need to be concerned about how activity will push inflation down in the medium term.

"It is quite clear that inflation is going to rise in the short term but we need to look through that and also to focus on the fact that many of these price hikes have come about not because of the tightness of the British economy, not because of the tightness of monetary policy but because of China and speculation and other things.

"So I am absolutely hawkish on inflation but the issue is, down the road, what is going to happen.

"In my view the balance of risk has changed to the down side significantly on the real economy."

He refuses to go into whether he things that the remit the MPC has from the government, to keep inflation in check, is the right approach.

"That's the world we live in. The government sets the remit and we follow. We are inflation targeters but we need to think about output and employment."

Did he mean to suggest in his speech that other things are more important than inflation? "I didn't say that. That's not what I said, no.

"I am just saying that they have underestimated the risk to output which ultimately will feed through to inflation in the medium term."

He continued: "My judgment is that the evidence so far suggests that the risks that we will undershoot the target of inflation in the medium term have increased."

Blanchflower agrees with economists like his friend and Royal Dornoch golfing partner Prof David Bell of Stirling that Scotland may escape the worst of what is to come.

During his visit he was told that house price to earning ratios in Scotland were lower than elsewhere and that the size of the public sector, larger than south of the Border, "represented some cushion". There was, however, concern over the reliance on the financial service sector but some he met argued that Scotland would not be so hard hit as it did not have the same exposure to investment banking as the City of London.

And will Scotland will be as hard hit by the slow down, or possible recession? "Scotland does look somewhat resilient."

Some good news at least from someone who, in his academic life, has recorded the trend of "happiness" – judged by interviewing the public – moving up since 2000, but it has now moved downward.

He explains: "One of the interesting factors around the world is why happiness has not increased much. That is something economists do not quite understand."

One might be forgiven for asking whether it had anything to do with listening to economists' predictions.

In Blanchflower's case, we will know soon enough whether the happiness guru's predictions of unhappy times to come are right.