If all the economists in the world were laid end to end, they would not reach a conclusion. The “battle of the letters” – two letters in the FT, from Lord Skidelsky and others and Lord Layard and others, replying to a letter in the Sunday Times from Professor Tim Besley and others – brings this hoary joke to mind.

Thus, the Sunday Times letter argued that “the government's goal should be to eliminate the structural current budget deficit over the course of a parliament”, instead of the two planned by the government. In response, opponents argued that it would be foolish to slash the structural deficit if this led to a deeper recession and so to an offsetting rise in the cyclical deficit.

Yet both groups might be right. A book on inter-generational (in)equity by David Willetts, a Conservative shadow minister, and the green budget from the Institute for Fiscal Studies have clarified the issues for me: the answer lies in the growth.

The Organisation for Economic Co-operation and Development forecasts the excess of income over spending in the UK private sector at 11 per cent of gross domestic product this year. Certainly, we must not allow this frugality to cause a depression. But why should it be wasted in unsustainable consumption when it could be usefully invested, instead?

In the green budget, Michael Dicks of Barclays argues that the Treasury has been too optimistic in assuming that the crisis means only a 5 per cent reduction in potential output and no change in potential growth. On the basis of studies carried out by the OECD and the International Monetary Fund, he argues that the fall in potential output might be 7½ per cent relative to the prior trend, or even as much as 10 per cent. Even worse, future growth rates might be merely 1¾ per cent a year, not 2¾ per cent, as the Treasury bravely still believes.

The implications would be dramatic: GDP would be around a quarter lower in 2030 than the Treasury thought before the crisis hit. Moreover, it does not make much difference if the loss of potential output now were to be 5 per cent or even 10 per cent. What matters far more is whether future growth would be 2¾ per cent or merely 1¾ per cent.

It is of great importance, therefore, to manage policy so as to minimise the impact of this crisis on the level – and even morethe growth – of potential output. It is indeed vital to avoid further crises. That is why the sustainability of the public finances must be credible, as the original letter writers argued. But it is even more important to avoid unnecessary losses in output, investment and longer-term economic dynamism.

An obvious way to combine credibility with a pro-growth stimulus is to close the structural current deficit relatively rapidly, while introducing credibly temporary offsets, particularly via spending on investment and tax holidays. The central bank should also finance such temporary deficits. That would eliminate the crowding out of private investment that would occur if governments borrowed in the market, instead. The government would need to co-ordinate closely its structural fiscal consolidation and temporary spending and tax cuts with the Bank of England.

Imagine, for example, that an incoming government decided to eliminate the presumed structural deficit in one parliamentary term, instead of the eight years planned by the present government. The Treasury believes this deficit to be just 5.2 per cent of national income. But, under the assumptions in the green budget, it could be as big as 9 per cent of GDP. Delivering a tightening even of 5.2 per cent of GDP over one parliament, without any offset, is likely to push the economy back into a recession. So combine the necessary structural changes to pay, pensions and other long-term spending commitments with credibly temporary offsetting measures, such as lower taxes, incentives for investment and large one-off infrastructure projects.