LONDON – In 1969, the British financial journalist Samuel Brittan published a book called Steering the Economy: The Role of the Treasury. At the time, it was still widely assumed that the United Kingdom’s economy was steerable and that the Treasury (which was still in charge of monetary policy) was at the helm.
Back then, the Treasury’s macroeconomic model, which calculated national income as the sum of consumption, investment, and government spending, effectively made the budget the regulator of economic performance. By varying its own spending and taxation, the Treasury could nudge the UK toward full employment, real GDP growth, and low inflation. Subsequent models, influenced by the monetarist and New Classical revolutions in economic theory, have since reduced the state’s capacity to intervene. Yet the belief that governments are responsible for economic performance still runs deep.