‘Arithmetic was not Howe’s strong point’ – Mainly Macro
Devotees of This Blog will have noticed that it had nothing to say about the passing of Geoffrey Howe, who some have named Margaret Thatcher’s nemesis, even though he was her staunchest ally from 1979 throughout the 1980s.
This is because I wanted to put forward some information on his actual performance as a cabinet minister and, in particular, as Thatcher’s first Chancellor of the Exchequer, and I was waiting for someone with experience of this role – who wasn’t going to be abjectly sycophantic – to step up.
Here’s Professor Simon Wren-Lewis:
I personally will remember him as Chancellor when Margaret Thatcher came to power. In 1981 I was a young Treasury economist who happened to be in charge of calculating the economic effects of the budget using the Treasury’s macro model. I was too junior to go to most budget meetings involving ministers, but I did go to one. I was there as the technical backup in case the Chancellor asked a difficult question about the model simulations. I was naturally psyched up, but it turned out for no reason. There were no questions about the simulations, or even about any macroeconomic effects. The most technical any interrogation by the Chancellor got was to ask ‘how’s that figure arrived at?’, to which the reply was ‘by summing the numbers above, Chancellor’. As one senior civil servant told me afterwards, arithmetic was not Howe’s strong point.
Why was there so little interest in the macroeconomic effects of that notorious 1981 budget (of letter from 364 economist fame)? It is difficult to understate the culture shock that occurred in the Treasury after Mrs Thatcher’s election. Treasury ministers, including Nigel Lawson (who succeeded Howe as Chancellor and is now an active climate change sceptic), believed that Treasury advice – including anything from its macro model – was outdated Keynesian nonsense and that monetarism was the way forward. When internal Treasury model forecasts predicted their policies would create a recession within a year, they were dismissed with the assertion that the unemployment impact of tight monetary targets would be small and very temporary. (Unemployment doubled and only returned to 1979 levels in a sustained manner by the end of the century. We got classic Dornbusch overshooting, as this 1981 Brookings paper by Willem Buiter and Marcus Miller describes, probably followed by unemployment hysteresis.)
It may be that high unemployment was necessary to bring inflation down. It may even be that a contractionary budget in 1981 was sensible to achieve a better monetary/fiscal mix. What is almost certainly not true is that this was calculated by Howe, Lawson and Thatcher.
Source: mainly macro: Howes that
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Nice One, Mike.
Cabinet Ministers are untrained amateurs – all they have is their own arrogance. The fact Howe decided his own background as a lawyer made him more qualified than 364 economists says it all.
I only met Jeffery a few times and i can say he was decent way better by far then any Tory today
he never once said a bad word about the sick or disabled and for that i respected him
Thatcher and Howe were tight as could be until Thatcher disrespected him for some stupid reason, loyalty was not one of her strong points either, and that was the beginning of the end of her, shame the same couldn’t happen to Camoron too!
Interesting blog, both for the politically & economically astute as well as the layperson with an interest, such as myself.
Of course, achieving political office, let alone as a cabinet minister, doesn’t usually mean the Rt. Hon. Member has the qualification or competence to fully execute their mandate.
Never better illustrated, than George Osborne’s failure of his maths at Ordinary level.
So we have a battalion of economists, statisticians and academics, to crunch the numbers, run the algorithms and build the models that shape our destinies.
Politics is driven by ideology and personalities, but the engine room is staffed by technicians & engineers.
When we have political discourse driven by propaganda, ideology and vested interests, there appears to be a concerted effort to throw spanners in the works & starve the engine of oil.
We get the current Tory economics, of trying to steer the ship by blowing air at the passengers and cutting off the communications with the engine room.
Where the deficit is running at an all time high and the press are shielding the government from the realities and spouting an often repeated lie, I take a great interest.
Let’s hope others read your excellent blog and gain insight into what’s going on below decks.
Thank you for coming up for air….
Drew