Death Spiral

It isn’t often that we hear from those who have graced the Bank of England’s Monetary Policy Committee (MPC). When we do, they demonstrate a range of independent thought: while there may be the view expressed that one or more of the banks should have been allowed to go to the wall, there is also the occasional trenchant pro-Euro member, such as Willem Buiter.

Now, economist David Blanchflower, who has served three years on the MPC, has made his views plain on the cuts debate. And the parallels he draws are interesting: the 80s recession, induced and made worse by the Thatcher Government’s brief love affair with Friedmanism, is one. The other is that of 1930s USA, when recovery from the Depression had started, but had not taken hold, before there was a move to balance the budget.

In the latter case, the response to urges from mainstream economists to move to a balanced budget can be forgiven: the conclusions that Keynes made in The General Theory Of Employment Interest And Money were not widely known, and not yet accepted. Moreover, whatever his politics, Franklin Roosevelt was reluctant to run a deficit.

But today, we have the lesson from the 30s in the USA, and its later reinforcement in early 80s UK. So the Government, whatever its stripe, should not go on a cutting spree until recovery is not only under way, but well established.

Unless it wants to re-learn the lesson one more time.