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March 7th, 2009


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09:03 am - 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.

(9 comments | Leave a comment)

Comments:


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From:sugoll
Date:March 7th, 2009 09:37 am (UTC)
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> I'm worried about the Tories winning the next election (which I take as a certainty)

I don't understand that logic. I don't dispute it, and I don't mean that I don't understand why you're saying it. I mean, I don't understand why it has to be "Labour fucked up, so of course we go back to the Tories." *shouts out of window* Why don't you bastards try voting for *someone else*?
[User Picture]
From:communicator
Date:March 7th, 2009 09:55 am (UTC)
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I don't think Labour has fucked up the economy, though I think they have made many other errors. I think this country like every other has been hit by what is effectively an international disaster. I think the model of supporting public expenditure is the best way to survive that disaster, and the other parties will abandon that model.

(of course as I say, they might continue it, like the Tories did in the 50s)

Edited at 2009-03-07 09:56 am (UTC)
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From:dfordoom
Date:March 7th, 2009 10:20 am (UTC)
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The funniest thing about the present crisis is watching the free marketeers trying to expain how the free market really does work, honest, and just because the free market has sent the world economy down the toilet doesn't mean it doesn't work.
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From:communicator
Date:March 7th, 2009 10:26 am (UTC)
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Yes. The next stage will be those same people saying of course they always knew the system was no good, and thank goodness the rest of us are at last acknwledging what they have been saying all along. And thanks for the multi-million bonus.
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From:dfordoom
Date:March 7th, 2009 10:28 am (UTC)
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The libertarians are the funniest of all. As always. What would we do for laughs without the libertarians?
From:srk1
Date:March 7th, 2009 11:38 am (UTC)
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I think that we may be seeing signs of recovery by the next election and that Cameron will immediately halt and reverse that recovery by putting up taxes and imposing spending cuts, as Howe did during the recession of the early 80s.

The Conservatives have not moved on from Thatcherism, not a bit. What they have tried to do is give Thatcherism a more modern face by supporting elements of social liberalism and the equality/diversity agenda. Cameron's mentality is still essentially that the Thatcherite settlement worked and he would prefer to return to something like that model. If you read his rhetoric prior to the crisis, he was talking mainly about social 'reform' (also in a Thatcherite direction, benefit cuts etc) and nothing at all about economics. He thought Thatcher fixed the economy for all time.

Meanwhile, the Conservative Party - at large and parliamentary - is much more right wing than it was under Thatcher. There are almost no 'wets' or one nation Tories left. Many of the 2005 intake are rabid Thatcherite hardliners. These people are clearly going to push the Tories in the direction of more Thatcherism. If they get elected it will be a catastrophe for this country and in particular for the weak and vulnerable people who always pay the biggest price when times are hard.
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From:communicator
Date:March 7th, 2009 02:06 pm (UTC)
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What you say is exactly what I fear. I just want to be able to believe that it might not be as bad as that. Thatcherism without the overt racism and hatred of single mothers etc will still be economically disasterous.
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From:kalypso_v
Date:March 7th, 2009 12:35 pm (UTC)
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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.

George. Osborne.

Two words which send me back out on the streets with a Labour sticker.
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From:communicator
Date:March 7th, 2009 02:12 pm (UTC)
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They might dump him. They may have to.

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