The 364 Economists and the 1981 Budget: An Examination of the Empirical Evidence

Abstract

Earlier this year we passed the 25th anniversary of the letter to The Times from 364 economists protesting about government economic policy in general and the 1981 Budget in particular. In a recent publication, Stephen Nickell, then a member of the Monetary Policy Committee of the Bank of England, defended the letter. This article contends that Nickell's argument was wrong. This is not merely a matter of historical interest, it is important that the issues are understood if mistakes are not to be made in economic policy in the future. Tim Congdon is an IEA Fellow (timcongdon@btinternet.com).

After the 1981 Budget: A Reply to Tim Congdon

“…In what follows, I expand on this sentence and show that it is indeed correct, contrary to the argument set out in Congdon (2006). 3…”

“…In my contribution to the IEA's recent collection of essays on the 1981 Budget 2 (Nickell, 2006), I argued that it did. In Congdon (2006), Tim Congdon proposed a refutation of my arguments. My core argument is set out in one sentence in Nickell (2006):…”

“…I said that it did, in fact, deepen from 1981 Q1 to some point in the period from 1983 to 1986. In Congdon (2006) there is a figure showing the UK's output gap. Eyeballing this figure reveals that this measure of the output gap reached its lowest point in 1983 Q1.…”

“…3 3 Tim Congdon claims in the closing paragraph of Congdon (2006) that I contended that growth was beneath trend for five years from the 1981 Budget. I contended no such thing, having said that growth was below trend from the 1981 Budget to some time during the period 1983–86. …”

Big Tech Oligopolies, Keith Cowling, and Monopoly Capitalism

“…He was one of the 364 economists who signed the now infamous letter to The Times criticising Geoffrey Howe's 1981 budget that cut public expenditure and hiked taxes in the depths of the recession. While monetarists subsequently ridiculed this letter, as GDP soon began to recover (see Congdon, 2006), output growth remained significantly below trend throughout the decade (Nickell, 2006). Moreover, the budget might well have exacerbated poverty, socio-economic and regional inequalities that remain to this day.…”