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A PM's relationship with economists can be fraught

Economy Watch

By Esmond Birnie, Ulster University Economic Policy Centre

One of the most unusual contributions during the recent general election campaign was the comment of the Shadow Chancellor John McDonnell that we could learn a great deal from Karl Marx.

In particular, the latter's 2,400 page wrist-breaking book Capital (Das Kapital). His party leader was rather more ecumenical. Jeremy Corbyn said he had profited from reading not only Marx, but also Adam Smith and David Ricardo. All this prompts me to consider the relationship between Prime Ministers and senior politicians and economics.

There has probably been only one British Prime Minister (PM) who could be said to have been a professional economist; Harold Wilson. This was not so much because he took a Politics, Philosophy and Economics (PPE degree from Oxford - quite a few PMs have done that) but because of his experience working in the government's statistical service during the Second World War.

Wilson was also a research assistant to William Beveridge when the latter was working on his report on post-war unemployment and social security policy.

Similarly, just one PM has had a doctoral degree. Gordon Brown's PhD was on the history of the Scottish Labour Party in the 1920s, and not on economics. His time as Shadow Chancellor and then as Chancellor was marked by frequent references to some then, apparently, cutting edge theories, though this perhaps partly reflected the impact of his assistant Ed Balls. The latter is now better known for dancing than endogenous growth theory.

Of course, it is not necessary for a PM to have a formal training in economics as long as they have the intellectual capability and the wisdom to discern what is best among the sometimes conflicting economic advice they receive. Lord Alec Douglas-Home, briefly Conservative Prime Minister in the early 1960s, was humble enough to admit that he used matchsticks to think about economic problems.

Winston Churchill was uncharacteristically unsure of himself when he was Chancellor during the second half of the 1920s. He was not ignorant of economics, given that he had somewhat self-taught himself by reading classics of early nineteenth century political economy whilst serving as an army officer in India in the 1890s. This may have meant he was not really aware of what had happened in twentieth century economic theory and he did follow some bad advice when in 1925 he ordered the pound to re-join the gold standard at a very high exchange rate.

PM James Callaghan's speech to the 1976 Labour Conference, when he basically said that we used to think we could spend our way out of a recession, but that was no longer an option in an inflationary world, was certainly notable. It was very similar to some things the American economist Milton Friedman had argued about eight years before. Most commentators have avoided either praising or blaming Callaghan for this speech, by arguing it was written by his son-in-law, Peter Jay.

Sometimes it has been useful for a PM to get endorsement from economists. There was a mutual admiration between Margaret Thatcher and the Nobel Prize winning economists Friedman and Friedrich von Hayek. At the same time, in 1981, 364 economists penned a letter to The Times, saying Thatcher's macro-economics would not work. Several of the lecturers who taught me economics were among the 364.

In the late 1920s, Keynes endorsed Lloyd George, although the latter was never to return to power after 1922.

His endorsement shocked some, given that he had slammed the latter at the time of the negotiation of the Versailles peace treaty with Germany. Keynes had described Lloyd George as a "goat-footed bard".

Keynes was never greatly concerned by allegations of inconsistency. He is said to have argued, "When the facts change, I change my mind. What do you do?"

As space is limited I cannot really go back before the twentieth century.

Suffice to say, the two most interesting Chancellors (they both later became PMs) may have been William Gladstone and Benjamin Disraeli. The mid-nineteenth century was an era when Budget speeches were set pieces lasting hours; the longest nearly five hours.

Finally, a deeper question - do politicians genuinely listen to economists, or do they decide what they want to do and then seek some tame economist willing to provide support?

Keynes was a very strong subscriber to the first view. Indeed, in 1936 he wrote that the ideas of economists and political philosophers were going to the rule the world.

Professor T.W. Hutchison in the 1960s and 1970s was much more cynical (realistic?) and felt governments tended to use economists to support things they would have done anyway.

I suspect the truth lies in the middle.

In next week's Economy Watch, we hear from Neil Gibson, director of the UU economic policy centre

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