16th August 2012
Over two and a half years ago, 20 influential economists (including Ken Rogoff, Roger Bootle and Danny Quah) wrote an open letter to the Sunday Times in support of George Osborne's deficit reduction strategy. They wrote: "… in order to be credible, the government's goal should be to eliminate the structural current budget deficit over the course of a Parliament, and there is a compelling case, all else equal, for the first measures beginning to take effect in the 2010/11 fiscal year."
George Osborne later hailed their letter as a "really significant moment in the economic debate".
But now, with the UK economy embroiled in a double-dip recession, this week's issue of the New Statesman (out tomorrow), asks the same 20 economists whether they now regret signing the letter and what Osborne should do to boost growth.
"Of those who replied, only one, Albert Marcet of Barcelona Graduate School of Economics, was willing to repeat his endorsement of Osborne. Nine urged the Chancellor to abandon his opposition to fiscal stimulus and to promote growth through tax cuts and higher infrastructure spending, while others merely said "no comment" or were "on holiday"."
"With the UK able to borrow at the lowest interest rates for 300 years (largely owing to its non-membership of the euro and its independent monetary policy) the signatories are both surprised and dismayed at Osborne's failure to invest for growth. Since the coalition came to power, the Chancellor has cut investment spending by £24.4bn, a reduction of 48 per cent."
Andrew Lilico, a columnist for the Conservative Home, however, isn't so sure that the economists have actually made a u-turn on the recommendation that the government should eliminate the structural current deficit starting in 2010/11.
"How many of them say they've changed their mind on either of these things, according to the comments they published in the New Statesman? Zero. That's right. The New Statesman provides a list of their comments, and not one of the economists says he now thinks cuts to the structural current budget deficit should be slowed or should have started later."
"What nine of them do say is that the cuts to capital spending should stop and capital spending might even increase. But since that's capital spending, not current spending, that doesn't affect the structural current deficit………Indeed, one of the nine, Roger Bootle, said recently in terms that increasing capital spending now "would not necessarily imply that Osborne's Plan A was wrong".
"So the New Statesman exclusive appears to be that, of the ten economists they could get hold of, nine of them say there should not be material further cuts to capital spending (as does Osborne) and not one of them says that current spending should not be cut (as per Osborne's plan). And Osborne should be upset by this because…?"
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