Famously or notoriously, depending on one's viewpoint, the 364 were wrong. To quote Nigel Lawson, who would become Chancellor of the Exchequer in 1983, the timing of the recovery was "exquisite" in refuting the 364's prognoses. Demand and output started to move upwards in the second quarter of 1981, just as the debate about the Times letter was at its most intense. Although unemployment remained high for some years, the economy gathered pace and in the late 1980s entered another boom. If this was a laboratory experiment for Keynesian economics, its results suggested that the textbook formulas were flawed. Old-fashioned principles of sound finance returned to favour in the UK, while the ratio of public debt to gross domestic product fell to manageable levels. For more than 25 years Keynesian fiscal activism was ignored or even forgotten.

But university economists continued to teach Keynesian macroeconomic as if nothing had happened. Sure enough, in Britain many academics realised from the sequel to the 1981 Budget that something was wrong with Keynesianism or, at any rate, with the naive versions of Keynesianism which emphasised the blessings of fiscal fine-tuning. But in the American East Coast universities — notably the Ivy League establishments — the UK's 1981 Budget was too parochial an event to justify rewriting textbooks and lecture notes. Such influential figures as George Akerlof and Robert Shiller of Yale, Paul Krugman of Princeton and Joseph Stiglitz of Columbia, all now Nobel prize laureates, continued to teach that an increase in the budget deficit adds to aggregate demand and a decrease deducts from it. They also derided monetary economics, and pooh-poohed the notion that changes in the rate of growth of the quantity of money could have important effects on demand, output and employment.

When the Great Recession hit in late 2008, the overwhelming majority of top-notch American economists were clear about the right agenda. They advised the newly-elected President Obama to implement a big boost to government spending and a large widening of the budget deficit. According to data from the International Monetary Fund, in the three years to 2010 the USA's budget deficit (after adjusting for cyclical influences on it) soared by 6.5 per cent of national output, by far the most aggressive fiscal easing in American peacetime history. Some of the measures, including tax cuts for the middle classes, were temporary. If the red ink being spilt at the state and local government levels is added to the Federal deficit, the total public sector deficit in 2010 and 2011 was well above 10 per cent of national output.

The merits of the lurch into deficit are a matter of debate. But hardly anyone doubted that the peak deficit numbers were unsustainable, not least because some of the biggest buyers of American government debt were foreigners (including the Chinese) and the long-term geopolitical consequences of ever-rising external indebtedness were unpalatable. From 2010 some of the so-called fiscal "stimulus" was withdrawn. Initially the Keynesians did not make a fuss, but at the end of 2012 the big temporary tax cuts were due to be rescinded. On unchanged policies, a drastic fall in the budget deficit was in prospect.