More on Maggie

It was

One of the great pleasures of the internet is to see Baron Tebbit, former Chairman of the Conservative Party, saying something like “I was disappointed to read the view of viewtoday, David Simpson, Jangly Guitar Part and others…” Well, if it’s alright for Norm it’s alright for me so I thought I’d take some time to engage with some of my critics.

The thrust of my article for The Commentator last week was that when someone tells you about the party they have planned for when Margaret Thatcher pops her clogs it is generally a sign that they haven’t thought about the matter very much, at least, not in any serious or original way. There was little in the responses to indicate that this observation is wrong and much to suggest it is entirely correct.

Over on twitter @BirleyLabour saw it as an example of “Tory hate for Sheffield” despite the fact that I am from Sheffield and am not currently a member of the Conservative Party (and when I am I’m not a Tory). Still, it’s nice to see the Sheffield Labour Party’s long tradition of idiocy being upheld.

‏@DaveTomHodges said it was “somewhat odd to write a piece proclaiming the longeivity of Thatcher’s ideas at a time they’re most discredited economically” I asked him which ideas he meant exactly (my answer would have been monetarism, but there you go) and got in reply “why that would be the low global growth over the last 30yrs as a starter. Economic extremists on both sides are v.dangerous!”

For starters, I don’t think low economic growth was one of Thatcher’s ‘ideas’. It might have been a consequence (though I’d argue against that) but it’s not as though she thought sometime before 1979 “Hang on; what we need is lower economic growth” In fact, she is often slated for putting the pursuit of economic growth above any other considerations. The charges against Thatcher are rarely coherent.

Secondly, though, what has economic extremism one way or the other got to do with it? It doesn’t matter whether your ideas are extreme or not, it only matters whether they are right.

After that young Master Hodges drifted into the last refuge of the Thatcher Bashers, some stuff about Chile and Pinochet.

Another vocal critic on twitter was @glynsmith3. His intial response was “Thatchers achievements mmmm. no sorry she’s just an evil cow who destroyed many peoples lives #witch” which rather proved my initial point. He went on to tweet “you are one selfish dickhead. 5 million unemployed, but at least your fucking happy eh.#torywanker” (proving my point again – and it was 3 million) before tweeting “no abuse from me” He eventually asked “pray tell why Thatcher was so good. i did ask 30 messages ago” which suggests he hadn’t actually read the article which had got him so angry in the first place.

I ought to say that not all the response was bonkers. I was pleased to see a few of my fellow Sheffielders agreeing in the comments (Andrew Cadman, Chrisuk1943, and Phil).

And not all the anti responses were barking. My friend Phil, a thoughtful fellow, reflected on Facebook that “the experience of leaving school and trying to find a job in a city affected as Sheffield was circa 1982 gives me the right to dislike someone who caused that affect” This demands more of a reply.

I don’t think anyone would disagree that Sheffield in the early 1980s was a grim place to be. The question was to what extent that was Thatcher caused it. If she didn’t then celebrating her demise is pretty daft.

Thatcher was elected to tackle two problems; inflation and excessive trade union power. The tool she used to tackle inflation was the doctrine of monetarism. This diagnosed the cause of inflation as being growth in the money supply and prescribed the cure as being the slowing of this growth. However, a decline in the growth rate of the money supply would lead to higher interest rates and higher unemployment.

That is, in fact, exactly what happened under the first monetarist government Britain had; Labour in 1976. That year Jim Callaghan, Thatcher’s predecessor, was forced to ask the IMF for a bailout. One of the conditions of the IMF’s loan, not unreasonable given the inflation of 25% the previous year, was a slowing in the growth of the money supply. The Chancellor, Denis Healey, obliged (he had no choice) and unemployment quickly shot up to a post war record of 1.5 million in 1977 where it more or less stayed until Thatcher was elected. Inflation, meanwhile, fell to 8% in 1978 before Labour went on a pre election credit binge and it started heading upwards again.

So given the experiences under Callahan/Healy as well as Thatcher/Howe, we can safely say that the defeat of severe inflation means higher unemployment. There is no other way. If you believe that the inflation Britain was plagued by in the 1970s needed to be defeated you cannot hold the subsequent unemployment against Margaret Thatcher.

You might, however, think that the price was too high and that high and increasing inflation was preferable to the unemployment that was an unavoidable part of getting rid of it. Celebrating Margaret Thatcher’s death because of the unemployment she oversaw only makes sense if you believe this.

The trouble is that economic theory had come to predict and the practical experience of the 1970s had borne out that using a bit of inflation to reduce unemployment only worked for a short time (that short time getting shorter with every dose) and that each dose had to be higher than the one before*

Indeed, this insight came to Jim Callaghan before Thatcher was even elected. In 1976 he told the Labour Party conference that

“We used to think that you could spend your way out of a recession, and increase employ­ment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists, and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of infla­tion into the economy, followed by a higher level of unemployment as the next step. Higher inflation followed by higher unemployment”

That was Thatcher’s belief put as well as she ever put it herself.

Quite simply the path of ever higher inflation was the path to national ruin. Thatcher saved us from that at a dreadfully high cost. But anyone who tells you it was available cheaper is having you on.

* The reasoning behind this was that if people expected inflation of 5% they would factor it into their calculations and only nominal magnitudes (prices) would change, real ones (output, unemployment) wouldn’t. So, to spur an increase in output or employment the inflation would have to be unexpected so if 5% was the expected rate the actual rate would need to be, say, 8%.

However, once people factored in the 8% rate the next stimulus would have to be up higher, say 10%…