I’ve long argued that it’s a mistake for the left, and the government in particular, to sign up to the “cuts agenda” pushed by the Tories, the right-wing press and the free-market think tanks since the financial crash in late 2008. Instead, Brown, Darling et al should have questioned the underlying (and economically illiterate) premise of the Tory argument: how does cutting spending in the middle of a recession help economic growth or prevent widespread unemployment?
As I pointed out in a speech at Ken Livingstone’s Progressive London conference last month, going into an election campaign advocating only “nicer” and “smaller” cuts is both unwise (in terms of economic policy) and pointless (in terms of political strategy). The fact is, on spending v cuts, the much-reviled Ed Balls has been right all along.
It is therefore a delight to see some of the country’s — indeed, the world’s — top economists come out in favour of deficit spending, and against immediate and “swingeing” cuts, in two letters to the Financial Times today.
My colleague George, on the Staggers blog, has already posted on the two letters and pointed out that they make a mockery of George Osborne’s claim that there is a “consensus of expert economic opinion” behind his plans to make cuts to public spending as soon as he walks through the door of No 11.
Letters signed by economists have a long pedigree in British politics — the celebrated 1981 letter by 364 academic economists, protesting Geoffrey Howe’s monetarist budget, is often cited. The 60-plus economists in the FT today were responding to the silly, incoherent letter signed by 20 other economists in the Sunday Times last weekend. From the Murdoch-owned paper:
Signatories of a letter, published today in the Sunday Times, include the former chief economist of the International Monetary Fund, a former deputy governor of the Bank of England and head of the Financial Services Authority, and a former permanent secretary to the Treasury and cabinet secretary.
. . . It was organised by Tim Besley, a professor of economics at the LSE, who left the MPC last year. The names include Lord Turnbull, Sir Howard Davies, Lord Desai, Ken Rogoff, Thomas Sargent and Sir John Vickers.
As I said, George has already highlighted how foolish today’s letters make Osborne look, but I’d point out that they make Tim Besley look like an even bigger fool. Here’s his quote in the Sunday Times:
“I don’t want this to be seen as us siding with anyone,” he said. “But it does suggest that the Conservatives are where majority opinion lies.”
How foolish he must have felt this morning, confronted by two letters of rebuttal signed by, among others, Nobel Laureates such as Joseph Stiglitz and Robert Solow, Ivy League heavyweights such as Richard Freeman of Harvard, and former members of the Monetary Policy Committee such as our own David Blanchflower, Sir Andrew Large, Rachel Lomax, Chris Allsop and Sushil Wadhwani. Not to mention grandees such as Lords Layard, Skidelsky and Peston. Sorry to seem so petty and immature, but the Sunday Times list looks rather pathetic, insubstantial, underqualified and second-rate in comparison.
Of course, for some people, this will all seem like gobbledegook and another example of dull, internecine warfare within the (much-discredited) economics profession. One is reminded, as our prescient leader in the magazine this week points out, of Churchill’s line: “If you put two economists in a room, you get two opinions.” Or even Harry Truman’s declaration, in response to equivocations from his economic advisers (“on the one hand . . . but on the other . . .”): “Give me a one-armed economist!”
Nonetheless, the future of the economy, and the lives and prospects of millions of unemployed Britons, depend on fiscal policies enacted by the next government. The two FT letters expose Osborne and his Sunday Times supporters as being in the minority, rather than the majority, of “expert economic opinion”. It is therefore difficult to disagree with a spokesman for the Chancellor, Alistair Darling, who said this morning that the latest letters showed that Osborne had “jumped on the wrong bandwagon”.
Yet this debate will rumble on. The modern-day Hooverites will not give up so easily. Their agenda is to shrink the state, not grow the economy.
So who are YOU going to trust? Economists such as Stiglitz, who warned of the dangers of financial deregulation in the 1990s, and Blanchflower, who saw the recession coming and voted for rate cuts in 2007 and 2008, or Ken Rogoff, a lifelong proselytiser for the deregulatory reforms and financial liberalisation that helped cause the crash, and Tim Besley, who failed to spot the recession coming and voted for a hike (!) in interest rates as late as July 2008?
I know which side I’m on.
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