This letter was published in the FT on 30th July 2020
Dear Editor,
We write as members of the Progressive Economy Forum. We have reviewed the fiscal sustainability report published by the Office for Budget Responsibility (OBR) on 14 July 2020. We believe that its approach to economics is wrong. The view it presents does not, in our opinion, help economic recovery.
The OBR’s focus is on how the government might pay for the consequences of the coronavirus crisis. We do not think that this is appropriate. That is because this approach is essentially microeconomic, and assumes the government is an entity independent of the economy as a whole. The implication is that the government is an agent too small to influence the direction and level of activity in the economy.
We do not agree with this view. In the macroeconomy the government shapes the direction and size of the economy through its regulations and decisions on spending, taxing and borrowing.
As a consequence the focus of the OBR report should not have been on the sustainability of the current debt/GDP ratio but on the impact of government spending on the economy. This would require that the OBR assess the affordability of government finance in a macroeconomic context.
Given the prospective rise in unemployment, the OBR report should have considered whether the policy proposals announced by the Chancellor in July will be sufficient to maintain the economy as it exits from the lockdown. That would have required an assessment of the revenue generating potential of each proposal. In an economic downturn, increased revenue needs to be considered as a consequence of policy and not as a primary aim… As Keynes suggested, if the problem of unemployment is solved, so too is that of the budget.
Our plea is then a simple one. Might the OBR please discuss economics, the economy and necessary economic policy and stop obsessing about the accounting problem of balancing books that have very rarely ever been balanced in the last 326 years?
We might all be better off if they did. We would certainly have better economic policy and better public finances.
Yours faithfully,
Patrick Allen, Chair PEF
Carolina Alves
Ha-Joon Chang
Danny Dorling
Daniela Gabor
Stephany Griffith-Jones
Sue Himmelweit
Will Hutton
Sue Konzelmann
Johnna Montgomerie
Richard Murphy
Natalya Naqvi
Ann Pettifor
Robert Skidelsky
Guy Standing
Geoff Tily
John Weeks
Progressive Economy Forum
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