Wynne Godley

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Wynne Godley
Born (1926-09-01)1 September 1926
Died 13 May 2010(2010-05-13) (aged 83)
Nationality British
Field Monetary economics
School/tradition Post-Keynesian economics
Influences John Maynard Keynes, Nicholas Kaldor, James Tobin, Francis Cripps
Influenced Marc Lavoie
Bill Mitchell
Randall Wray
Martin Wolf
Steve Keen
Contributions Stock-Flow Consistent Modelling
Sectoral financial balances
St Michael's Victory over the Devil, by Sir Jacob Epstein, the head of which was modelled on Wynne Godley

Wynne Godley (2 September 1926 – 13 May 2010) was an economist famous for his pessimism toward the British economy and his criticism of the British government.


Born in London, he went to Rugby School then read politics, philosophy and economics at New College, Oxford where Isaiah Berlin was one of his tutors, and trained to become a professional musician, studying at the Paris Conservatoire for three years, and then becoming principal oboist at the BBC Welsh Orchestra. He was however continuously nervous about performing in public, and gave up this career, although he remained interested in music and was director of the Royal Opera from 1976 to 1987. In 1955 he married Kitty Epstein, daughter of Jacob Epstein the sculptor, who used his head as the model for his statue of St Michael at the rebuilt Coventry Cathedral.

After his musical career ended he became an economist at the Metal Box company, and then from 1956 to 1970 he worked at the Treasury where he worked in macroeconomic policy issues and short term forecasting, bridging economic and policy issues, including the 1967 devaluation of the pound under Harold Wilson.[1][2] While at the Treasury he met Nicholas Kaldor, who persuaded him to move to Cambridge University where he became a fellow of King's College and director of the department of applied economics, although he continued to work as a government economic advisor at times, and was appointed as one of Norman Lamont's 'seven wise men'[3] external economic advisors after Black Wednesday. He predicted that the 1973–74 economic boom would end, and that unemployment would hit 3 million in the 1980s. As one of his proteges noted, these dire warnings "… earned him the title 'Cassandra of the Fens' and were derided – until they came true".[4]

His contributions to Treasury policy thinking over the years were acknowledged by Dave Ramsden, chief economic advisor to the treasury: "In the 2000s, much of which coincided with a period of apparent and widely researched stability, what stands out is his distinctive analysis and his prescience about the looming financial and economic crisis, and the potential role for what had become by then innovative policies in responding." In 1992 he warned that without shared fiscal policy to replace currency movements there would be problems with monetary union in Europe.[5]

In 1995, Godley took up a post at the Levy Economics Institute of Bard College in New York State, where his work focused on the strategic prospects for the US and world economies, and the use of accounting macroeconomic models to reveal structural imbalances. In 1998, he was one of the first to warn that the growing imbalance in the global economy, fuelled by burgeoning American private sector debt, was unsustainable. His book Monetary Economics: Integrated Approach to Money, Income, Production and Wealth (2007), written with Marc Lavoie, deals with stock-flow consistent macro modelling.

Economic contributions[edit]

Main article: Sectoral balances
Graphic illustrating Godley's sectoral financial balances analytical framework

Economist Martin Wolf gave credit to Godley's "sectoral financial balances" analytical framework in a 2012 analysis of the Great Recession. Wolf explained: "The essential idea is that since income has to equal expenditure for the economy, as a whole, (which is the same thing as saying that savings equals investment) so the sums of the difference between income and expenditures of each of the sectors of the economy must also be zero. These differences can also be described as “financial balances”. Thus, if a sector is spending less than its income it must be accumulating (net) claims on other sectors. The crucial point is that, since sectoral balances must sum to zero, a rise in the deficit of one sector must be matched by an offsetting change in the others. It follows that if the fiscal deficit is increasing, the sum of the surpluses of the other sectors of the economy must be increasing in a precisely offsetting manner." Wolf explained that a large increase in the private sector financial balance drove a large increase in government deficits.[6]

According to the sectoral balances approach, austerity can be counterproductive in a downturn due to a significant private-sector financial surplus, in which consumer savings is not fully invested by businesses. In a healthy economy, private-sector savings placed into the banking system by consumers are borrowed and invested by companies. However, if consumers have increased their savings but companies are not investing the money, a surplus develops. Business investment is one of the major components of GDP.

Economist Richard Koo described similar effects for several of the developed world economies in December 2011: "Today private sectors in the U.S., the U.K., Spain, and Ireland (but not Greece) are undergoing massive deleveraging [paying down debt rather than spending] in spite of record low interest rates. This means these countries are all in serious balance sheet recessions. The private sectors in Japan and Germany are not borrowing, either. With borrowers disappearing and banks reluctant to lend, it is no wonder that, after nearly three years of record low interest rates and massive liquidity injections, industrial economies are still doing so poorly. Flow of funds data for the U.S. show a massive shift away from borrowing to savings by the private sector since the housing bubble burst in 2007. The shift for the private sector as a whole represents over 9 percent of U.S. GDP at a time of zero interest rates. Moreover, this increase in private sector savings exceeds the increase in government borrowings (5.8 percent of GDP), which suggests that the government is not doing enough to offset private sector deleveraging."[7]


  • Wynne Godley and Marc Lavoie, 2007. Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth, Palgrave MacMillan. ISBN 0-230-50055-2 Description.
  • Wynne Godley and T. Francis Cripps, Macroeconomics, ISBN 0-19-215358-7


External links[edit]