An exchange 25 years later between Professor Stephen Nickell and Tim Congdon

Abstract

After the 1981 Budget, 364 university economists in Britain wrote to The Timesto complain about the tightness of macroeconomic policy, prompted by the plans in the Budget to cut public sector borrowing by some £3.3 billion, mainly by increasing taxes. It is now a commonplace view that the 364 were wrong to complain because, shortly after publication of the letter, the growth rate of real domestic demand and GDP switched from negative to positive. As it happens, this view is incorrect. As one of the 364, I would say that, wouldn’t I? So in what follows I pursue this question by analysing the periods before and after the sending of the letter. I conclude that the 364 economists were perfectly correct to complain about the macroeconomic policy of the day back in 1981.