Close This site uses cookies. If you continue to use the site you agree to this. For more details please see our cookies policy.


Type your text, and hit enter to search:

Some Humility is in order for years of austerity 

Philip Stephens could have gone further in his description of the shifts in economic orthodoxy over the past few decades (“Why economists keep being wrong on policy”, Opinion, February 19).

What John Kenneth Galbraith termed “conventional wisdom” can be a powerful force. Flawed thinking can often prevail until there is a clear alternative worldview on offer.

Many of the inequalities and imbalances highlighted by the pandemic were caused or exacerbated by the austerity which characterised fiscal policy after 2009. Yet those years of austerity after the global financial crisis had demonstrated the failure of prevailing economic thinking.

We now hear past advocates of harsh fiscal policies intoning that the spending taps should be kept on and without any fiscal rules being applied. Some humility might be in order.

Economics at present seems to be more focused on describing what is happening than providing a framework for policymakers. As in a world war, necessity rules the day for finance ministers at the moment, with theory playing catch-up. We certainly do need to “dust off Keynes’s General Theory” again as Stephens suggests, not in order to repeat the policy debates of the past but to provide a foundation for understanding the economic world today.

This letter was first published by the Financial Times on 23 February 2021.

Financial Times, 23 February 2021, 23/02/2021

The scope for government economic policy has narrowed, but something has to change.
Government needs to say will reverse or postpone tax cuts if OBR says not sustainable. Bank of England should improve its communications.
Why the Bank had to restore order.
Labour has to challenge conventional wisdom to promote economic growth that benefits everyone - otherwise our public services will continue to deteriorate.
What matters most is our economy's productive potential. We don't usually get something for nothing.
A sketch of where we are following recent data. Some investment and ESG questions.
The Bank of England's outlook in its August Monetary Policy Report was one of doom and gloom. It should ensure it is not captured by dated orthodoxy but ultimately government should act on cost of living crisis.
Not an easy task given uncertainties, especially if energy and commodity prices do fall later in the year. Ultimately, radical economic reform required.