Letter: Necessity of balancing the economy, not the budget

Sir: Thank heavens two distinguished economists, Messrs Little and Scott, have appeared in print (Letters, 12 October) attacking the current policy of cutting the budget deficit. For three decades after the war, students would learn with incredulity that this was the official policy of the early Thirties, when clearly what was needed was an increase, not a decrease, in public expenditure. The objective of policy should be to balance the economy, not the budget.

It is true that some of the consequences of prolonged full employment were undesirable, particularly in Britain, where the trade union movement exploited its power in a short-sighted and irresponsible manner. Consequently, when the balance of power shifted in the economic circumstances of the early Seventies, there was no shortage of economists to provide theoretical reasons why fiscal stabilisation policy was impotent in the short run and harmful in the long run, or whatever their political masters wanted to hear.

Of course, it is particularly difficult for an individual country to 'go it alone' with an expansionary policy. But the current recession is now virtually worldwide. Hence, what is needed is for British representatives at international gatherings to urge the other governments to take concerted expansionary action. Instead, we have the opposite as each country, including Britain, tries to impress on the others how 'macho' it is in its determination to cut public expenditure and balance the budget in the interests of price stability.

It may well be, as Professor Lord Skidelsky fears (letter, 13 October), that even in the weakening state of world commodity markets, a concerted economic expansion would add two or three points to the price level. Quite apart from alleviating the terrible human tragedy for the individuals thrown out of work, this would be a small price to pay to avoid the social and political consequences of further prolonged and deepening worldwide recession, which is another lesson that we learnt from the experience of the Thirties.

And today there is the added complication of the chaos in much of Eastern Europe. If the richer countries are obsessed with cutting public expenditure, they are hardly likely to be in a mood to provide substantial assistance.

The fact that in Britain we need to develop policies to deal with our longer-term structural problems, including those of wage determination, should not be a pretext for failing to tackle the urgent short-term crisis, let alone making it worse by cutting public expenditure.

Yours faithfully,

WILFRED BECKERMAN

Balliol College

Oxford

13 October