Godley letter to FT

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Thanks, will distribute and post on my blog.

Known Wynne for quite a while.

He’s been doing sector analysis for maybe 50 years and has often been the UK’s top forecaster because of it.

Immediate cuts to budget deficit will worsen recession

Oct. 9 (FT) — Sir, George Osborne is committing himself unconditionally to making very large cuts in the budget deficit. I think he may be very seriously mistaken.

If these cuts were all to be made immediately he would obviously make the present recession very much worse than it already is.

To make sense of his proposed cuts it must be assumed that there is a rise in private expenditure relative to income (ie, a fall in net private saving) that roughly matches them in both scale and timing. But it is quite likely that private saving will not fall nearly enough. If, as I foresee, it does not do so, then Mr Osborne’s cuts will be much too large.

Wynne Godley,
King’s College,
Cambridge University, UK