Economic Theory

Can 364 economists all be wrong?

The impact and legacy of the seminal 1981 Budget
In 1981 almost the entire economics profession – 364 academic economists including many professors at leading universities – signed a letter to The Times in response to Geoffrey Howe’s budget arguing that the government’s economic policy was fatally flawed, had no basis in economic theory and should be abandoned in favour of alternative policies.

A new report by the Institute of Economic Affairs* provides evidence to suggest that the 364 economists were all wrong. Contrary to their predictions, almost immediately after the budget the economy began to grow, inflation fell and eventually employment grew. It is argued that the budget marked a turning point in British economic policy as financial credibility was restored through restraints on public spending and a significant increase in taxes.

The IEA publication contains commentaries on the budget by leading proponents of the then government’s economic policy, Professors Tim Congdon, Patrick Minford and Geoffrey E Wood. It also contains defences of the 364 by leading signatories Lord Peston and Stephen Nickell, a member of the current Bank of England Monetary Policy Committee. Further analysis is provided by David Laws MP, Shadow Lib Dem Work and Pensions Minister, Derek Scott, a former economic advisor to Tony Blair, and Professor Philip Booth of the IEA.

The report also includes: the list of signatories, the letter, the statement by the 364 and the government’s response. The letter was signed by 76 professors and a majority of the Chief Economic Advisors to the government since the Second World War. It is notable that many people who are prominent in public life today were signatories, such as: the Governor of the Bank of England Mervyn King, former LSE Director and Third Way architect Anthony Giddens and Nobel Prize Winning economist A.K. Sen.

Read the full report here.