Leading economists spell out letter of the law ahead of PBR
There’s a very significant letter published in the FT today, signed by twelve leading professors of economics. They’re calling on the Chancellor, Alistair Darling, not to risk the recovery through premature spending cuts in this week’s Pre-Budget Report. I’ve copied it out below. The letter that shows that while politicians talk tough on public spending, our leading economists are deeply concerned about immediate spending cuts which could undermine recovery.
Those who think the recession is over and are calling for immediate deep public spending cuts are being dangerously complacent. With unemployment rising, and both consumer and business confidence on a knife edge, cutting back on spending now runs the risk of sending us into a second wave of recession.
As we look forward to the Pre-Budget Report (PBR) there is inevitability a great deal of debate about the best pace and scale of reductions in the deficit and about how to balance the likely solutions of economic growth, tax and spend.
These are important concerns the Chancellor will want to address but the more immediate focus of the PBR is the financial year ahead. As economists with a variety of specialties, we urge the Chancellor to resist any temptation to start cutting public spending in 2010/11.
Despite improvement in the outlook, taking risks at this point while recovery is delicate would risk a return to recession. What progress has been made towards recovery in the UK and abroad has been, in some considerable part, due to decisions by governments to increase spending as a stimulus, to actively support labour markets and to accept higher deficits as an inevitable outcome of these measures.
To reverse this policy just when it is having an effect would be mistaken. Although, in such unusual times, it is difficult to be sure of the best actions to take, we feel that the balance of risk suggests our country should be more concerned about a likely deepening of unemployment than about possible inflationary pressure.
Reducing the deficit now through spending cuts would undermine the recovery and ultimately damage the public finances further.
Professor David Blanchflower, Dartmouth College and University of Stirling
Professor David Bell, University of Stirling
Professor William Brown, Cambridge University
Professor Paul Dolan, Imperial College, London
Professor Peter Elias, University of Warwick
Professor Robert Elliott, Aberdeen University
Professor Saul Estrin, London School of Economics
Professor Richard Freeman, Harvard University and CEP, LSE
Professor Geraint Johnes, Lancaster University
Professor Robert MacCulloch, Imperial College, London
Professor Stephen Machin, UCL and CEP, LSE
Professor Andrew Oswald, University of Warwick