Men of letters
How many economists does it take to write a letter? Yesterday, the answer was 20. But students of British economic history will remember that in the spring of 1981, the answer was 364.
Back then, the economy was emerging from a double-dip recession, but the recovery was far from secure. When Geoffrey Howe decided to raise taxes by £4bn to restore Britain's credibility in the financial markets, the entire economics profession was up in arms.
In a letter to The Times, 364 of them - including the future governor of the Bank of England, Mervyn King, and the Labour peer, Maurice Peston - said that Howe's policy had "no basis in economic theory or supporting evidence", and that Britain's "social and political stability" was at risk if the government did not change course.
Nearly 30 years on, we now have 20 economists writing to the Sunday Times taking exactly the opposite view: deriding the government for not tightening fiscal policy fast enough. The list is shorter, but high-quality: this time, it's a former Deputy Governor of the Bank of England, Howard Davies, and the Labour peer is Lord Desai.
The Conservatives were cock-a-hoop yesterday, heralding the letter as an "important political moment". Perhaps they've forgotten how that 1981 letter worked out.
As I described in a film for Newsnight in honour of the 25th anniversary of the 1981 Budget, history was not kind to the 364. In fact, the economy started growing strongly, almost as soon as Howe's Budget was delivered. In retrospect, the tax rise looked well-timed.
Will today's letter-writers fare better? The answer is almost certainly yes, because, this time, the economists have been careful to hedge their bets.
The main thrust of their argument is that the UK needs to cut its structural budget deficit more quickly than the chancellor has suggested. On this they are in agreement with the IMF, the OECD and all the ratings agencies. Presumably, the chancellor disagrees. But the majority of economists would probably say that borrowing needs to come down more quickly, including many inside HM Treasury.
In calling for the elimination of the structural current budget deficit over the course of the parliament, the economists appear to be endorsing Conservative policy. But note that this is not the same as eliminating the structural deficit entirely. And note, also, that the difference between this and Labour policy is not as great as you might think. According to the IFS, it would mean about £15bn in additional spending restraint or higher taxes - a little more than 1% of GDP. (See my post on the Green Budget.)
They - the economists and the Conservatives - are equally cagey about 2010-11. Yes, "other things equal", they would want efforts to cut borrowing to begin this year. But the timing should be "sensitive" to the state of the global recovery. And, of course, the government is already starting to tighten this year, by removing the fiscal stimulus and putting VAT back up.
It's nice to see that letter-writing by economists is back in vogue. But I'm not sure it will change the political weather in 2010, any more than it did in 1981.