Letter to a former student about Margaret Thatcher's economic legacy

Hey Mick,

So I thought I would give you a little reprieve from my nagging questions, but as Margaret Thatcher just died, I can't hold them back any longer.

My first question; is The Economist a conservative publication? 

My second question is more geared towards your opinion. I am in the middle of the article the Economist wrote about Thatcher. I know your general opinion of Thatcher, or at least I think I know it. The Economist has credited her with creating an 'ism' theory-Thatcherism. Matching its popularity with Keynesian economics. My real question here is-do people see Thatcherism as on the same level with Keynes economics?  Did Thatcher bring the UK economy back from imminent peril?  If a liberal had become PM instead of Thatcher and that PM had used Keynes economics instead of conservative economics, would the UK economy have come back? 

XXXX


Dear XXXX

It's argued by neo-liberal economists (i.e., neo-conservatives who believe in market "freedom") that the combination of industrial stagnation (slow growth) and inflation in the mid-to-late 1970s in both Britain and the US was caused by Keynesian policies dating back to WW2, and immune to normal Keynesian stimulus.

In particular they blame the high upper income bracket tax rates then in place in both countries.

I see this as an excuse. We don't really know if a serious Keynesian stimulus would have worked, because none was tried, at least not until Reagan's military spending later in the 1980s.

Thatcher and Reagan certainly used the ensuing crises, particularly various catastrophic strikes, as well as public fear of the Soviet Union, and, in Thatcher's case, the Falklands War, to justify their neo-liberal policies and distract the populace while they ran down the public and manufacturing sectors of the economy.

Keynes' wasn't alive, so we don't know what he would have said. But neither Reagan and Thatcher's neo-liberal economic policies worked that well. Thatcher certainly rejuvenated the City of London (Britain's Wall Street), which became a glittering hub of global finance to an extent never previously imagined. But she did so by essentially abandoning all Britain's great industrial cities, including my home town of Sheffield.

Millions of British people have lived far worse lives as a result, with fewer services, low-wage jobs or no jobs, and rising economic insecurity, crime, delinquency, and the loss of culture. You could say that she "financed" British economic recovery, economically and politically speaking, by running down manufacturing cities in the north of England and in the Celtic British countries (Wales, Scotland, Northern Ireland).

Especially after the catastrophic miners strike of 1984, with the unions out of the way, she was able to cut taxes on the rich and bring in Arab sheiks and Russian oligarchs to sponsor London's glitter, while ordinary people in ordinary cities lived with fewer services and no jobs for decades.

Reagan found it hard to pull out of the depression even with his lower taxation policy, and so the American manufacturing sector also began to decline sharply, until he began to reinvest in the US military. This is actually a Keynesian policy. Some call it "militarized Keynesianism", the only kind of Keynesianism you can get an American conservative to like.

Neither recession really ended until after the first Gulf War, with the so-called "dot com" bubble. The new technology, which was primarily American-led and American-owned, gave the US an economic advantage globally or the first time in a generation. Britain followed along in the US wake, providing a funnel for finance for the boom. Bill Clinton and Tony Blair reaped the reward, a short period of prosperity and budget surpluses in the mid 1990s. This came to an end with 9/11 and the bursting of the dot com bubble, after which manufacturing even in technology fled to China.

You have to give Margaret Thatcher credit for standing up against the Argentine dictators, when they invaded the Falklands, and against the PIRA, who almost killed her in the Brighton hotel bombing. She and Reagan also stood up against the Soviet Union, and so were partly responsible for the fall of communism. I do feel that Margaret Thatcher truly believed she was fighting for democracy and the rule of law.

But I think their economic record is a mixed bag, not at all the clear cut case that US neo-liberals like to make out, and recovery, when it finally came, was as much about technological change and military spending as it was about neo-liberal theory.

The loss I feel the most of all, and the loss that prompted me to leave the Royal Air Force in protest in 1985, was the loss of the northern and Celtic Fabian and communitarian ethic. Prior to Thatcher we had a rich heritage in the north and west of self-help Fabianism, unionism, cooperative societies and community spirit. Labour activists and Fabians in my family, particularly my grandfather GW Womersley, helped plan out the rebuilding of Britain after World War II. You should see the public housing estate my grandfather helped plan, in Dronfield, in the late 1940s and early 1950s. It's beautiful to this day, a model of community development, and a great improvement on the capitalist-owned slum housing prior to the war, much of which was bombed. My cousin (third or fourth) Malcolm Muggeridge, a BBC talk-show personality, was also a very successful spokesperson for this point of view. They represented a culture of decency and respect for the working woman and man that has now been lost to history, and supported the rebuilding of the northern and western communities that Thatcher's policies destroyed.

Thatcher and her ilk confused Fabianism with communism. But Muggeridge fought communism his whole life. He actually blew the whistle on Stalin as early as the 1930s.

So in general I think it unfair to credit Thatcher with any real economic achievement, except perhaps to set the stage for the failure of our most recent hyper-capitalist system during the Great Recession.

While one thing she did achieve was to undo the simply marvelous economic achievements of the earlier generation of Fabians, who rebuilt Britain after the war.

A very cheap victory, if anyone is foolish enough to even think it a victory.


Enjoy,

Mick


PS: The Economist can be conservative in the sense that we all sound conservative when explaining supply-demand realities. But mostly, it's just intelligent about economics.