Communicator (communicator) wrote,

Keynes and Thatcher

There's an interesting post on Crooked Timber about right wing criticism of the Keynsian theory behind the various economic stimulus activities that Western governments are undertaking at the moment. Keynes has been way out of fashion for decades but he seems to be having the last laugh (of course nothing is ever 'last'). I like Keynes. I think that holding a Keynsian model in your head helps you to predict what's going to happen next in the economy.

I'm worried about the Tories winning the next election (which I take as a certainty) because the last stretch of Tory government dismantled the post war Keynsian model, with I believe disasterous consequences. I hope Cameron's government will be like the Tory government of the 1950s which continued the welfare programme of Attlee, under a Tory facade.

The alternative is a return to Thatcher-style monetary tightening, and we'll all be fucked if that happens. Thatcher thought of the national economy like a household budget - money was a resource which came in, in limited supply, and the good money-manager spent it frugally. Thus to lay off people whose wages were paid from the public purse (let us say a nurse or a miner) 'saved' us the cost of the nurse's wage. Simple calculation. Just as if a household money-manager didn't buy a luxury and saved money.

But in reality, within the national economy, money is not like a fuel which is burnt once and then is gone; it's like a medium, let's say blood, which circulates, transferring energy. So, if you lay off a nurse you 'save' her salary, but you 'lose' all the taxes she would have paid, and you 'lose' the cost of keeping her unemployed. There is a marginal cost (a nurse's salary is more than unemployment benefit) but of that extra money, a goodish proportion would be spent within this country, and therefore continues to circulate.

That shows the difference betwen the two models. In the Thatcherite model it is a waste to spend money on employing extra nurses in the NHS. In the Keynsian model it is a waste to have fit and highly trained young women sitting inactive at home. In the Thatcher model, the basic fact is money, in the Keynsian model the basic fact is work. In my opinion we wasted the North Sea Gas bonanza on keeping millions of people inactive and untrained for over a decade, during which the problems of drugs and violence escalated. It's a tragedy, and we are suffering it now.

I know there are limits to this model. The nurse will buy a foreign car, or nicer coffee, and the energy goes out into the global economy, which is more complex.There is the risk of giving people futile make-work jobs - Keynes says this is still better than having people starve, but it's not a great plan is it? The other big problem in all models is vulnerability to international nightmares like the oil crisis of the 1970s and the current fiasco.

On the whole I think we are transitioning to a global model, and I think our best bet (as britain I mean) is to form a strong economic alliance with Europe, and use the Keynsian model to maximise the use of our human and natural resources to prepare for what is to come.

It's possible Cameron is sensible enough to act Keynsian and build international alliances while talking Tory. But I fear that his loyalty is limited to his own class. If he brings back Thatcherism, I think there will be poverty in this country like we haven't seen since the thirties.
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