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The chancellor’s plans, announced in his Mansion House speech, for “permanent budget surpluses” are nothing more than an attempt to outmanoeuvre his opponents (Report, 10 June). They have no basis in economics. Osborne’s proposals are not fit for the complexity of a modern 21st-century economy and, as such, they risk a liquidity crisis that could also trigger banking problems, a fall in GDP, a crash, or all three.The chancellor’s plans, announced in his Mansion House speech, for “permanent budget surpluses” are nothing more than an attempt to outmanoeuvre his opponents (Report, 10 June). They have no basis in economics. Osborne’s proposals are not fit for the complexity of a modern 21st-century economy and, as such, they risk a liquidity crisis that could also trigger banking problems, a fall in GDP, a crash, or all three.
Economies rely on the principle of sectoral balancing, which states that sectors of the economy borrow and lend from and to each other, and their surpluses and debts must arithmetically balance out in monetary terms, because every debit has a corresponding credit. In other words, if one sector of the economy lends to another, it must be in debt by the same amount as the borrower is in credit. The economy is always in balance as a result, if just not at the right place. The government’s budget position is not independent of the rest of the economy, and if it chooses to try to inflexibly run surpluses, and therefore no longer borrow, the knock-on effect to the rest of the economy will be significant. Households, consumers and businesses may have to borrow more overall, and the risk of a personal-debt crisis to rival 2008 could be very real indeed. Economies rely on the principle of sectoral balancing, which states that sectors of the economy borrow and lend from and to each other, and their surpluses and debts must arithmetically balance out in monetary terms, because every debit has a corresponding credit. In other words, if one sector of the economy lends to another, it must be in debt by the same amount as the borrower is in credit. The economy is always in balance as a result, if just not at the right place. The government’s budget position is not independent of the rest of the economy, and if it chooses to try to inflexibly run surpluses, and therefore no longer borrow, the knock-on effect to the rest of the economy will be significant. Households, consumers and businesses may have to borrow more overall, and the risk of a personal debt crisis to rival 2008 could be very real indeed.
These plans tie the government’s hands, meaning it won’t be able to respond appropriately to constantly evolving economic circumstances, good or bad. The plan actually takes away one of the central purposes of modern government: to deliver a stable economy in which all can prosper. It is irresponsible for the chancellor to take such risky experiments with the economy to score political points. This policy requires an urgent rethink.Dr Ha-Joon Chang, University of CambridgeThomas Piketty, Paris School of EconomicsDavid Blanchflower, Bruce V. Rauner Professor of Economics at Dartmouth College and ex-Monetary Policy CommitteeProf Mariana Mazzucato, RM Phillips Professor in the Economics of Innovation, University of SussexJared Bernstein, Former chief economist and economic adviser to vice-president Joe BidenProf Simon Wren-Lewis, University of Oxford Prof Victoria Chick, University College LondonProf Ozlem Onaran, Department of International Business and Economics, University of GreenwichProf Engelbert Stockhammer, Professor of Economics, University of KingstonHoward Reed, Director, Landman EconomicsRichard Murphy, Tax Research UKStewart Lansley, Visiting fellow, Bristol University Townsend Centre for International Poverty ResearchProf Andrew Cumbers, Professor of Political Economy, Adam Smith Business School, University of GlasgowProf Malcolm Sawyer, Emeritus Professor of Economics, Leeds University Business School Prof George Irvin, Professorial Research Fellow, SOAS, University of LondonProf John Weeks, Emeritus Professor, SOAS, University of LondonProf Prem Sikka, Professor of Accounting, University of EssexProf Christine Cooper, Accounting and Finance, Strathclyde Business SchoolProf Diane Elson, Emeritus Professor, University of Essex and Chair of UK Women’s Budget GroupProfessor Jonathan Michie, University of OxfordProf Robert McMaster, Professor of Political Economy, Adam Smith Business School, University of GlasgowDr Jo Michell, Senior Lecturer in Economics, University of the West of England, BristolProf Sheila Dow, Emeritus Professor of Economics, University of StirlingProf John Grahl, Professor of European Integration, University of MiddlesexProf Jan Toporowski, Professor of Economics, SOAS, University of LondonProf Philip Arestis, University of Cambridge Prof Giuseppe Fontana, Professor of Monetary Economics, Leeds University Business SchoolProf David Spencer, Professor of Economics and Political Economy, Leeds University Business SchoolProf Alfredo Saad Filho, Professor of Political Economy, SOAS, University of LondonProf Mary Mellor, Professor Emeritus, Northumbria UniversityDr Craig Berry, Deputy Director, Sheffield Political Economy Research Institute (speri)Prof David Newbery, Emeritus professor of Economics, Cambridge UniversityProf Hugh Willmott, CASS Business SchoolProf Steve Keen, Professor of Economics, Kingston UniversityDr Henning Meyer, Research Associate of the Public Policy Group, London School of EconomicsProf John Van Reenen, Professor of Economics, London School of EconomicsProf Ismail Ertürk, Senior Lecturer in Banking, University of ManchesterProf Susan Himmelweit, Emeritus Professor of Economics, Open UniversityProf Valpy FitzGerald, Emeritus Professor of International Development Finance, University of Oxford Prof Simon Mohun, Emeritus Professor of Political Economy, Queen Mary, University of LondonStewart Wallis, Executive Director, New Economics FoundationProf Klaus Nielsen, Professor of Institutional Economics, Birkbeck, University of LondonProf Pritam Singh, Professor of Economics, Oxford Brookes UniversityDr Andrew Mearman, Associate Professor in Economics, UWE BristolProf Matthew Watson, Professor of Political Economy, University of WarwickProf Grazia Ietto-Gillies, Emeritus Professor of Applied Economics, London South Bank UniversityDr Mary V. Wrenn, Joan Robinson Research Fellow in Heterodox Economics, Girton College, University of CambridgeGeoffrey Hodgson, Research Professor, University of Hertfordshire Dr Daniela Gabor, Associate Professor, UWE BristolProf Bruce Cronin, Director of the Centre for Business Network Analysis, University of GreenwichDr Annina Kaltenbrunner, Lecturer in the Economics of Globalisation & The International Economy, Leeds University Business SchoolProf Gary Dymski, Professor of Applied Economics, Leeds University Business School Michael Burke, EconomistDr Russell Smith, Senior Lecturer in Economics, Cardiff School of ManagementProf Philip B. Whyman, Professor of Economics at the University of Central LancashireProf Tony Thirlwall, Professor of Applied Economics, University of Kent Michael Kitson, Cambridge Judge Business School University of CambridgeDr Abigail McKnight, Senior Research Fellow, Centre for Analysis of Social Exclusion, London School of Economics Dr Ken Coutts, Assistant Director of Research, Faculty of Economics, University of Cambridge Prof Robert H. Wade, London School of EconomicsDr Kalim Siddiqui, Department of Strategy, Marketing and Economics, University of HuddersfieldProf Stuart Holland, University of Coimbra Dr Alberto Paloni, Adam Smith Business School, University of GlasgowEwa Karwowski, Lecturer in Economics, Kingston UniversityProfessor Marcus Miller, University of WarwickDr Gary Slater, Leeds University Business SchoolProfessor David Bailey, Aston Business SchoolDr David Harvie, Senior Lecturer in Finance and Political Economy, University of LeicesterBarbara Harriss-White, Emeritus Professor and Senior Research Fellow, Area Studies, Oxford UniversityDr Bruce Philp, Head of Department, Strategy, Marketing and Economics, Birmingham City Business SchoolRoberto Veneziani, School of Economics and Finance, Queen Mary University of LondonDr Julian Wells, Principal Lecturer in Economics, Kingston University LondonDr Neil Lancastle, Department of Accounting and Finance, De Montfort UniversityMimoza Shabani, Lecturer in Financial Economics, University of East LondonDr Ashley L. Carreras, Principal Lecturer in Economics and Decision Analysis Faculty of Business and Law, De Montfort University Prof Michael Lipton, Research Professor of Economics, Sussex UniversityDr Graham Gudgin, Research Associate, Centre for Business Research, University of Cambridge and Senior Economic Advisor, Oxford EconomicsProf Geraint Johnes, Professor of Economics, Lancaster University Management SchoolAndrew Simms, Fellow of New Economics Foundation These plans tie the government’s hands, meaning it won’t be able to respond appropriately to constantly evolving economic circumstances, good or bad. The plan actually takes away one of the central purposes of modern government: to deliver a stable economy in which all can prosper. It is irresponsible for the chancellor to take such risky experiments with the economy to score political points. This policy requires an urgent rethink.Dr Ha-Joon Chang University of CambridgeThomas Piketty Paris School of EconomicsDavid Blanchflower Bruce V Rauner professor of economics at Dartmouth College and ex-monetary policy committeeProf Mariana Mazzucato RM Phillips professor in the economics of innovation, University of SussexJared Bernstein Former chief economist and economic adviser to vice-president Joe BidenProf Simon Wren-Lewis University of Oxford Prof Victoria Chick University College LondonProf Ozlem Onaran Department of international business and economics, University of GreenwichProf Engelbert Stockhammer Professor of economics, University of KingstonHoward Reed Director, Landman EconomicsRichard Murphy Tax Research UKStewart Lansley Visiting fellow, Bristol University Townsend Centre for International Poverty ResearchProf Andrew Cumbers Professor of political economy, Adam Smith Business School, University of GlasgowProf Malcolm Sawyer, Emeritus professor of economics, Leeds University Business School Prof George Irvin Professorial research fellow, Soas, University of LondonProf John Weeks Emeritus professor, Soas, University of LondonProf Prem Sikka, Professor of accounting, University of EssexProf Christine Cooper Accounting and finance, Strathclyde Business SchoolProf Diane Elson, Emeritus professor, University of Essex and chair of UK Women’s Budget GroupProfessor Jonathan Michie University of OxfordProf Robert McMaster Professor of political economy, Adam Smith Business School, University of GlasgowDr Jo Michell Senior lecturer in economics, University of the West of England, BristolProf Sheila Dow Emeritus professor of economics, University of StirlingProf John Grahl Professor of European integration, University of MiddlesexProf Jan Toporowski Professor of economics, Soas, University of LondonProf Philip Arestis University of Cambridge Prof Giuseppe Fontana Professor of monetary economics, Leeds University Business SchoolProf David Spencer Professor of economics and political economy, Leeds University Business SchoolProf Alfredo Saad Filho Professor of political economy, Soas, University of LondonProf Mary Mellor Professor emeritus, Northumbria UniversityDr Craig Berry Deputy director, Sheffield Political Economy Research Institute (speri)Prof David Newbery Emeritus professor of Economics, Cambridge UniversityProf Hugh Willmott Cass Business SchoolProf Steve Keen Professor of economics, Kingston UniversityDr Henning Meyer Research associate, Public Policy Group, London School of EconomicsProf John Van Reenen Professor of economics, London School of EconomicsProf Ismail Ertürk Senior lecturer in banking, University of ManchesterProf Susan Himmelweit Emeritus professor of economics, Open UniversityProf Valpy FitzGerald Emeritus professor of international development finance, University of Oxford Prof Simon Mohun, Emeritus professor of political economy, Queen Mary, University of LondonStewart Wallis, Executive director, New Economics FoundationProf Klaus Nielsen, Professor of institutional economics, Birkbeck, University of LondonProf Pritam Singh Professor of economics, Oxford Brookes UniversityDr Andrew Mearman Associate professor in economics, UWE BristolProf Matthew Watson Professor of political economy, University of WarwickProf Grazia Ietto-Gillies Emeritus professor of applied economics, London South Bank UniversityDr Mary V Wrenn Joan Robinson research fellow in heterodox economics, Girton College, University of CambridgeGeoffrey Hodgson Research professor, University of Hertfordshire Dr Daniela Gabor Associate professor, UWE BristolProf Bruce Cronin Director, Centre for Business Network Analysis, University of GreenwichDr Annina Kaltenbrunner Lecturer in the economics of globalisation & the international economy, Leeds University Business SchoolProf Gary Dymski Professor of applied economics, Leeds University Business School Michael Burke EconomistDr Russell Smith Senior lecturer in economics, Cardiff School of ManagementProf Philip B. Whyman Professor of economics, University of Central LancashireProf Tony Thirlwall Professor of applied economics, University of Kent Michael Kitson Cambridge Judge Business School, University of CambridgeDr Abigail McKnight Senior research fellow, Centre for Analysis of Social Exclusion, London School of Economics Dr Ken Coutts Assistant director of Research, faculty of economics, University of Cambridge Prof Robert H Wade London School of EconomicsDr Kalim Siddiqui Department of strategy, marketing and economics, University of HuddersfieldProf Stuart Holland University of Coimbra Dr Alberto Paloni Adam Smith Business School, University of GlasgowEwa Karwowski Lecturer in economics, Kingston UniversityProfessor Marcus Miller University of WarwickDr Gary Slater Leeds University Business SchoolProfessor David Bailey Aston Business SchoolDr David Harvie Senior lecturer in finance and political economy, University of LeicesterBarbara Harriss-White Emeritus professor and senior research fellow, area studies, Oxford UniversityDr Bruce Philp Head of department, strategy, marketing and economics, Birmingham City Business SchoolRoberto Veneziani School of economics and finance, Queen Mary, University of LondonDr Julian Wells Principal lecturer in economics, Kingston University, LondonDr Neil Lancastle Department of accounting and finance, De Montfort UniversityMimoza Shabani Lecturer in financial economics, University of East LondonDr Ashley L Carreras Principal lecturer in economics and decision analysis, faculty of business and law, De Montfort University Prof Michael Lipton Research professor of economics, Sussex UniversityDr Graham Gudgin Research associate, Centre for Business Research, University of Cambridge and senior economic advisor, Oxford EconomicsProf Geraint Johnes Professor of economics, Lancaster University Management SchoolAndrew Simms Fellow, New Economics Foundation