When Liz Truss was asked by the BBC’s Nick Robinson whether she could name any economists who thought cutting taxes was the right medicine for the economy, Boris Johnson’s soon-to-be successor replied: “Patrick Minford.”
It was a case of history repeating itself, coming four decades after the same question was put to another Conservative prime minister. After 364 economists wrote to the Times attacking the 1981 budget as deflationary the then Labour leader, Michael Foot, asked Margaret Thatcher whether she could name two economics professors who supported her strategy.
Thatcher named Minford and the now departed Alan Walters, later joking in the car taking her back to Downing Street: “Thank goodness he did not ask for three!”
The anecdote says three things about the economist: he has been around a long time, he has form as a maverick, and he continues to influence the political debate.
Minford, now 79, is not as close to Truss as he was to Thatcher, but Johnson’s successor has picked up on some of his ideas – in particular the need to face down the Treasury, and to give stronger economic growth a higher priority than reducing the national debt. Truss agrees with Minford that tax cuts are needed to prevent the economy sliding into recession and that active fiscal policy – measures involving tax and public spending – is required so that the Bank of England can tackle soaring inflation.
“One way or another she has understood these points. This is a really important moment. The economy is being driven into the earth,” he says in an interview with the Guardian.
Minford made his name as one of the monetarists who revolutionised economic thinking in the late 1970s and early 80s. His Liverpool University model of the economy was based on rational expectations – the idea that people make decisions on available information and learn from past experience – which became popular as a theory to explain why high inflation was proving hard to shift.
Later, the financial crash of 2008 challenged the belief that markets were always right, but Minford remains convinced that low taxes, free trade and deregulation are what is needed to revitalise the economy. A founder member of Economists for Brexit – a group set up to make the case for leaving the European Union – he is frustrated by the government’s lack of action on the issue.
However, it was his attack on Sunak’s stewardship of the economy that initially attracted the attention of Truss.
Of the ex-chancellor’s record, Minford says: “National insurance is up. Corporation tax is going up. He hasn’t indexed tax allowances. That’s a cool £50bn. It needs to be cancelled and reversed. There needs to be a positive supply-side policy that’s aligned with fiscal policy that is counter-cyclical. That’s all been thrown to the winds by Treasury orthodoxy.
“One of the things that is so sad about the Treasury is that it has lost the capacity to model the economy and any interest in doing so.”
Sunak had argued the approach favoured by Truss and Minford would make Britain’s inflation problem worse and would require the Bank of England to raise interest rates sharply. Minford accepts rates would rise under his proposals, but says a rebalancing of economic policy is long overdue.
“It has been a mistake to rely solely on the Bank to keep the economy going because that has resulted in record low interest rates, zombie companies, poor returns for savers and higher inflation. Fiscal policy got thrown away as an instrument and that is a bad mistake.”
The Bank, he says, had to keep interest rates at ultra-low levels for more than a decade because fiscal policy was too tight. “Persistent austerity contributed to the malaise.”
For his fellow monetarist Tim Congdon, Minford’s views amount to heresy. He says: “It is no secret Patrick and I don’t get on. We go back a long way. I’m in favour of strong public finances and making sure governments can pay their bills. That’s part of what monetarism is about. Patrick has managed to get himself known as a monetarist without believing any of this stuff. Patrick is basically a Keynesian.”
Like Truss, Minford does not believe lower taxes would lead to higher inflation. Rather, he says, they would boost the supply-side potential of the economy, better aligning demand and supply, and therefore help keep inflation under control.
The left-leaning economist Richard Murphy says: “Minford has three strengths. He has been willing to think outside the constraints of prevailing economic models that restrict most other economists’ thinking. He has been willing to talk about his thinking, which far too few economists do. And he has stuck to his guns.
“He also has three weaknesses. His outside-the-box thinking is based on market fundamentalism, and that has casualties. His ability to forecast has been much worse than that of the average economist, and that’s saying something. As a result he has consistently been on the wrong side of events and political need.”
Gerard Lyons, a former adviser to Boris Johnson when he was London’s mayor and a Liverpool University student of Minford’s, says his former teacher was influential in persuading Thatcher to stick to her economic strategy during her first term.
“He has always believed in the relevance of fiscal policy. In the current circumstances that means borrowing is not a policy constraint, it is a policy option.”
The extent of Minford’s influence will become apparent in the next few weeks when Truss’s chancellor, widely tipped to be Kwasi Kwarteng, will announce an emergency package of measures designed to tackle Britain’s cost of living crisis.
During the leadership campaign, Truss’s railing against “Treasury orthodoxy” has stirred up old memories for the veteran economics guru. “She sees the need to be forceful with the Treasury and get it to sing to her tune,” Minford says. “In that respect she is quite like Mrs Thatcher.”
