Fifty economists wrong on public spending cuts

Letter by Philip Booth in The Daily Telegraph

The letter by more than 50 economists (report, April 15) attacking the Conservatives’ proposed efficiency savings uses surprisingly strong language. Many signatories were among the 364 economists who argued that Geoffrey Howe’s 1981 Budget would deepen the depression, they wrote a month or so before that depression ended.

One signatory of last week's letter, Richard Lipsey, was author of the standard economics textbook in the early 1980s, in which he argued that opposition to 1970s demand-management economics was “extreme”. Students were ill-served by such thinking – some of them are perhaps signatories of the recent letter.

The economists state that the tiny proposed cuts in public spending will (not “may”) lead to job losses and falls in spending.

In an open economy, if the state finances spending by borrowing, it can start a process – even in recession – that adversely affects exporters, investors and consumers. Government borrowing can soak up the money created by quantitative easing.

If, however, efficiency savings finance lower tax rises, it is difficult to see any logic in the economists’ arguments.

Professor Philip Booth
Institute of Economic Affairs

 

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