All that the socialist want is free like lunch. They are just bunch of lazy bastards.
All that the socialist want is free like lunch. They are just bunch of lazy bastards.
Kojo T 8 years ago
PKB at his worst in distortion .Ghana gave up Nkrumaism since 1966 anf Ghana has sunk.No nation using capitalism has developed since 1945 The hard working capitalist came and took lazy"" Africans as slaves to work their far ... read full comment
PKB at his worst in distortion .Ghana gave up Nkrumaism since 1966 anf Ghana has sunk.No nation using capitalism has developed since 1945 The hard working capitalist came and took lazy"" Africans as slaves to work their farms .Lazy China rose from 3rd to become the worlds 2nd largest economy".PKB forget about Keynes and give us why Ghana has not become a paradise since 1966 Why Nigeria that never had a socialist model has failed and Congo with vast resources has not become a power house ? Stop being negative and come up with positive solutions .Tony Blair had a bust because capitalist USA failed .The world today is a global village and what happens in the USA affects all.But I have asked you to tell us why Canada with a social democracy ie mixed economy was able to stay afloat ? Please re read Keynes and Das capital.They talk about two different things .Nkrumaism deals a lot with developmenta economics.Re read it again before writing
Mustapha Luri Suleman 8 years ago
You spoke my mind. I have been following PKB's writings and instead of focusing on the essential alternatives we crave for, it's rather lamentable that he sought to discredit everything about Keynes. (Just passing by)
You spoke my mind. I have been following PKB's writings and instead of focusing on the essential alternatives we crave for, it's rather lamentable that he sought to discredit everything about Keynes. (Just passing by)
KKO 8 years ago
Come on, how old are you? Ghana’s economy was on its knees by 1965. Ghanaians could not find the most basic things in life by that time. Why did Kodwo Addison advise Ghanaians to “spread palm oil on their bread if they co ... read full comment
Come on, how old are you? Ghana’s economy was on its knees by 1965. Ghanaians could not find the most basic things in life by that time. Why did Kodwo Addison advise Ghanaians to “spread palm oil on their bread if they could not find margarine?” Why do you think millions of Ghanaians poured out into the streets and lanes of every village and hamlet in the land to jubilate on 24th February 1966?
You might not have heard of the man who shot and killed a “Cocoa Receiver” after he had presented the useless “chit” he had been given for the purchase of his cocoa beans on numerous occasions. He needed money to care for his sick wife. He presented his chit over twenty times, to no avail. Then is wife died and he decided to deal with it his own way. There were harrowing cases like that all over the then cocoa growing areas in Ghana. And the reason was that although the state was selling and making money out cocoa, farmers were only being given useless chits in place of money.
Why did Nkrumah’s own ministers denounce him?
PK gave you the reason why Africa, and Ghana in particular, is not progressing; one word, CORRUPTION! If you have a country where the head of state will corruptly supervise giving away $1.5bn to undeserving cronies in judgement debts in three years and then go begging the IMF for $950m on draconian terms, why will that country ever develop? And then we have so-called educated people supporting such idiocy.
At least from a bankrupt country that had declared HIPC, Kufuor grew Ghana’s economy by more than 300% in eight years!
I guess you have not heard of the Asian Tigers, not even our new colonial masters the Chinese, who abandoned communism and are now are being paid bribes to dump their fourth grade goods produced in people’s backyards on us!
Dan Kosowah 8 years ago
KKO what does the article have to do with Ghana. In 1965 there were difficulties in Ghana as you stated but that happens everywhere as a matter of fact I was there and I lived through it. During the depression in the US peopl ... read full comment
KKO what does the article have to do with Ghana. In 1965 there were difficulties in Ghana as you stated but that happens everywhere as a matter of fact I was there and I lived through it. During the depression in the US people formed lines to get something to eat. They lived through it and came out of it eventually. In Ghana, a bunch of soldiers decided to take over, egged on by the Mate-Meho crooks to whom you espouse removed Nkrumah and Ghana has. been downhill since. Nkrumahism did no good for Ghana but pray tell, what has anyone been able to do worth mentioning since his death. Where is the can of worms. People lined up to buy provisions and stuff but that happened in the rich US of A. The difference is they bit the bullet and waited till things started getting better. This Man, Nkrumah has been dead for close to 50 years and we still blame him or his ideology for our mishandling of affairs. Now we even have an uncertified Lawyer who wants to be President. An attorney General with no certificate. ONLY IN GHANA. What happened to vetting. Keynes writing did and does not apply to Ghana.
KKO 8 years ago
That is our problem as a people. We jump on something with little understanding and it becomes our mantra. I responded to Kojo T's comment, which made reference to Ghana 1965!
I saw a bit of colonial Ghana and also lived ... read full comment
That is our problem as a people. We jump on something with little understanding and it becomes our mantra. I responded to Kojo T's comment, which made reference to Ghana 1965!
I saw a bit of colonial Ghana and also lived through the Ghana of 1961 to 1966. I also had first hand experience of working in some of those factories and institutions not long after the overthrow of Kwame Nkrumah.
While the Americans had the industrial base, market and wherewithal to work the economy back to life, we didn't. Ninety percent of the industries that Nkrumaists crow about depended on exports for everything from the MD's dust bin to scales for measuring weights of products. With no money to import the inputs, those factories were just white elephants. Add to it the fact that the managements were mostly made up of clueless CPP activists who employed their clones. Our import substitution thing was a monumental disaster.
Sir Arthur Lewis'programme included the development of a strong agricultural foundation, based on private ownership, not the rubbish Workers'Brigade nonesense. It was that and the capricious use of executive powers that forced Arthur Lewis to resign and head for the University of the West Indies.
By the way, from hindsight if Ghana had gone federal at independence, the more illustrious regions of the country would have developed and pulled the parasites with them. I saw it in the United States in the mid 1970s. Many of the southern states didn't even have internal plumbing then. They have all been pulled up through the "trickle down effect!"
Kyei 8 years ago
Contradiction galore. From 45 no capitalism but American capitalism causes the British bust.
Contradiction galore. From 45 no capitalism but American capitalism causes the British bust.
Philip Kobina Baidoo 8 years ago
Hello Kojo T, KKO has said it all so there is no need to add to who he wrote. Thank you.
Hello Kojo T, KKO has said it all so there is no need to add to who he wrote. Thank you.
Philip Kobina Baidoo 8 years ago
Some of them actually want free lunch, but the rest who are genuine and honest in their aspiration to help the poor don’t know that eventually it makes everybody poor.
Some of them actually want free lunch, but the rest who are genuine and honest in their aspiration to help the poor don’t know that eventually it makes everybody poor.
francis kwarteng 8 years ago
Title: "John Maynard Keynes Is the Economist the World Needs Now"
Source: Bloomberg Business
Author: Peter Coy
Date: October 30,2014
.................................................................................. ... read full comment
Title: "John Maynard Keynes Is the Economist the World Needs Now"
Source: Bloomberg Business
Author: Peter Coy
Date: October 30,2014
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Is there a doctor in the house? The global economy is failing to thrive, and its caretakers are fumbling. Greece took its medicine as instructed and was rewarded with an unemployment rate of 26 percent. Portugal obeyed the budget rules; its citizens are looking for jobs in Angola and Mozambique because there are so few at home. Germans are feeling anemic despite their massive trade surplus. In the U.S., the income of a median household adjusted for inflation is 3 percent lower than at the worst point of the 2007-09 recession, according to Sentier Research. Whatever medicine is being doled out isn’t working. Citigroup (C) Chief Economist Willem Buiter recently described the Bank of England’s policy as “an intellectual potpourri of factoids, partial theories, empirical regularities without firm theoretical foundations, hunches, intuitions, and half-developed insights.” And that, he said, is better than things countries are trying elsewhere.
There is a doctor in the house, and his prescriptions are more relevant than ever. True, he’s been dead since 1946. But even in the past tense, the British economist, investor, and civil servant John Maynard Keynes has more to teach us about how to save the global economy than an army of modern Ph.D.s equipped with models of dynamic stochastic general equilibrium. The symptoms of the Great Depression that he correctly diagnosed are back, though fortunately on a smaller scale: chronic unemployment, deflation, currency wars, and beggar-thy-neighbor economic policies.
An essential and enduring insight of Keynes is that what works for a single family in hard times will not work for the global economy. One family whose breadwinner loses a job can and should cut back on spending to make ends meet. But everyone can’t do it at once when there’s generalized weakness because one person’s spending is another’s income. The more people cut back spending to increase their savings, the more the people they used to pay are forced to cut back their own spending, and so on in a downward spiral known as the Paradox of Thrift. Income shrinks so fast that savings fall instead of rise. The result: mass unemployment.
Keynes said that when companies don’t want to invest and consumers don’t want to spend, government must break the dangerous cycle by stepping up its own spending or cutting taxes, either of which will put more money in people’s pockets. That is not, contrary to some of his critics, a recipe for ever-expanding government: Keynes said governments should run surpluses during boom times to pay off their debts and soak up excessive private demand. (The U.S. ran small surpluses in two boom years of the Clinton administration.) Far from a wild-eyed radical, he said economists should aspire to the humble competence of dentists. He wanted to repair economies, not overthrow them.
“There are still many people in America who regard depressions as acts of God. I think Keynes proved that the responsibility for these occurrences does not rest with Providence,” Bertrand Russell, the philosopher, wrote in his autobiography in 1969.
Enthusiasm for Keynes waxes and wanes. The last time the gawky Brit made a splash was 2008-09, during the global financial crisis. People who had borrowed extravagantly, using their houses as ATMs, turned overnight into financial Calvinists, cutting spending to pay down debt. Nervous chief executive officers simultaneously cut back on corporate investing. That led to a lack of demand for goods and services. Unemployment shot up, reaching 10 percent in the U.S. in 2009. Even conservative economists who generally eschewed Keynes knew a Paradox of Thrift when it punched them in the nose. “When things collapse, everybody becomes a Keynesian,” says Peter Temin, a professor emeritus of economics at Massachusetts Institute of Technology and co-author with University of Oxford economist David Vines of a new book, Keynes: Useful Economics for the World Economy.
Richard Posner, the free-market federal appellate judge, wrote a 2009 article for the New Republic titled “How I Became a Keynesian.” Harvard University economist Martin Feldstein, a longtime deficit hawk who was President Reagan’s chief economic adviser, wrote an op-ed in the Washington Post in October 2008 saying, “The only way to prevent a deepening recession will be a temporary program of increased government spending.” The following February, Congress passed a $787 billion stimulus, albeit smaller than Keynesian economists advocated and with no Republican votes in the House. Even Germany, that bastion of austerity, put aside its misgivings and approved its biggest stimulus package ever.
The crisis-induced embrace of Keynes infuriated the likes of German Finance Minister Peer Steinbrück, who complained in 2008, “The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking.” Wrote John Cochrane of the University of Chicago Booth School of Business on his website: “If you believe the Keynesian argument for stimulus, you should think Bernie Madoff is a hero. Seriously. He took money from people who were saving it, and gave it to people who most assuredly were going to spend it.”
The Keynesian jolt didn’t last long. European governments pivoted to austerity on the theory that doing so would reassure investors and induce a wave of investment, creating growth and jobs. It didn’t happen. The U.S. was marginally less austere and grew a bit faster. But even in the U.S., stimulus faded quickly despite continuing high unemployment. Far from priming the pump, changes in government outlays actually subtracted from the growth of the U.S. economy in 2011, 2012, and 2013. The Japanese government has been running big deficits to compensate for chronic hoarding by households and businesses, but in April it faltered, chilling the nation’s halting recovery by raising the value-added tax to 8 percent from 5 percent.
With fiscal policy missing in action, the world’s biggest central banks tried heroically to plug the gap. The U.S. Federal Reserve cut interest rates to near zero, and when even that failed it tried some new tricks: buying bonds to bring down long-term interest rates (“quantitative easing”) and signaling the market that rates would stay low even after the economy was on the path to recovery (“forward guidance”). The limited effectiveness of those measures is sometimes chalked up as a failure of Keynesianism, but it’s just the opposite. Keynes was the economist who demonstrated that monetary policy ceases to be effective once interest rates hit zero and whose recommended policy in those circumstances was tax cuts and spending hikes.
Whatever the economic facts, the slowness of the global recovery soured people on governments’ ability to intervene for the good. Stimulus is a toxic word in the U.S. midterm elections; Obama got nowhere with his $302 billion bridges-and-potholes bill this year. Germany, far from using its economic power to become an engine of growth for Europe as requested by its trading partners, is expanding at the expense of other countries. It’s keeping its workers busy by producing goods and services for export, while not buying the goods and services produced by other countries. That explains why the surplus on its current account, the broad measure of trade and investment income, equals 7 percent of its gross domestic product, the highest among major economies.
This isn’t a stable status quo. The mid-October shock in global stock markets betrayed grave concerns about a relapse. While the U.S. economy is growing adequately for now despite the drag from fiscal policy, China’s pace is slowing, Japan is suffering from the self-inflicted wound of its consumption tax hike, and the 18-nation euro zone had zero growth in the second quarter. That simply isn’t good enough, Treasury Secretary Jacob Lew said in an October visit to Bloomberg. “You need all four wheels to be moving,” he said, “or it isn’t going to be a good ride.”
Enter Lord Keynes. Cutting interest rates is fine for raising growth in ordinary times, he said, because lower rates induce consumers to spend rather than save while stimulating businesses to invest. But where rates sink to the “lower bound” of zero, he showed, central banks become nearly powerless, while fiscal policy (taxes and spending) becomes highly effective as a fix for inadequate demand. Governments can raise spending to stimulate demand without having to worry about crowding out private investment—because there’s plenty of unused capacity, and their spending won’t lift interest rates.
It’s the closest thing economists have found to a free lunch. Keynes, ever the provocateur, argued that in a deep recession anything the government did to induce economic activity was better than nothing—even burying bottles stuffed with bank notes in coal mines for people to dig up.
Of course, it’s far better if the money is spent well. Considering the crying need for better roads, bridges, tunnels, schools, and the like, it’s a no-brainer for governments to build them now, when there are willing hands and cheap loans. Harvard economist Lawrence Summers, a former Treasury secretary, and Brad DeLong of the University of California at Berkeley argued in 2012 that infrastructure investment might even pay for itself, in part by keeping people employed so their skills don’t atrophy.
If instead governments of rich nations do nothing more, hoping their economies heal on their own, they’ll all risk getting stuck in the same rut that’s trapped Japan for most of the years since its postwar economic miracle abruptly ended in 1990. Inflation is a fixable problem, as former Federal Reserve Chairman Paul Volcker showed: You just jack up interest rates high enough to break the fever, with a deep recession an unfortunate but temporary side effect. Japanese-style deflation, the spawn of chronic slow growth, is harder to break. Even fiscal stimulus may not work if households and businesses fall into a funk. As with fighting an epidemic or an insurgency, it’s crucial to act fast before the enemy gains strength. “This is going to be a bad analogy, but it’s like the fight against ISIS,” says David Joy, chief market strategist at Ameriprise Financial (AMP).
Keynes could be difficult and inconsistent. Paul Samuelson, the late Nobel laureate economist, described his book The General Theory of Employment, Interest and Money as “badly written, poorly organized … arrogant, bad-tempered, polemical, and not overly generous in its acknowledgments,” before summing it up as “in short, a work of genius.”
Love him or hate him, there’s no one like Keynes on the world stage today. He was a statesman, a philosopher, a bohemian lover of ballet, and a member along with Virginia Woolf in the artsy, intellectual Bloomsbury Group. He made and lost fortunes as an investor and died rich. In 1919, in a prescient book called The Economic Consequences of the Peace, he condemned harsh reparations imposed on Germany after World War I, which were so punitive that they helped create the conditions for Adolf Hitler’s Third Reich. In 1936 he essentially invented the field of macroeconomics in his masterwork, The General Theory. From 1944 until close to his death at age 62 two years later, he led Britain’s delegation in negotiations that resulted in the founding of the International Monetary Fund and the World Bank.
In the 1950s and 1960s, Keynesian thinking ruled. President Kennedy’s chief economic adviser, Walter Heller, persuaded the president in 1963 to propose a tax cut to stimulate demand. (It passed in 1964, after his assassination.) “That was the first time in history that a president specifically endorsed and adopted the Keynesian approach,” Heller told the New York Times in 1987.
Keynes came under a cloud starting in the 1970s because his theories couldn’t readily account for stagflation—the coexistence of high unemployment and high inflation. Academic economists were drawn to the new theory of “rational expectations,” which said that government couldn’t possibly stimulate the economy through deficit spending because foresighted consumers would rationally expect that the stimulus would have to be paid for eventually and so would save for future tax hikes, offsetting the initiative. Supply-side economists said Keynes missed how low taxes could stimulate long-term growth by inducing work and investment. “Unsuccessful policies and confused debates have left Keynesian economics in disarray,” the Swedish economist Axel Leijonhufvud wrote in 1983 for a conference celebrating Keynes’s centennial. A successor theory that evolved in the 1980s and 1990s, New Keynesianism, attempted to inject rational expectations theory into Keynes’s worldview while preserving his observation that prices and wages are “sticky”—i.e., they don’t fall enough in a slump to equalize supply and demand. New Keynesians range from conservatives such as John Taylor of the Hoover Institution to liberals like Berkeley’s DeLong.
On Wall Street, Keynesianism never really died, because its theories did a good job of explaining the short-term fluctuations bank economists are paid to predict. “We approach forecasting more from a Keynesian perspective whether we like him or not,” says Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities (DB).
If Keynes were alive today, he might be warning of a repeat of 1937, when policy mistakes turned a promising recovery into history’s worst double dip. This time, Europe is the danger zone; then it was the U.S. What’s called the Great Depression was really two steep downturns in the U.S. The first ended in 1933. It was followed by four years of output growth averaging more than 9 percent a year, one of the strongest recoveries ever. What aborted the comeback is still debated. Some economists blame President Franklin Roosevelt for signing tax hikes and cuts in New Deal jobs programs. Others blame the Federal Reserve. Dartmouth College economist Douglas Irwin argues that the Roosevelt administration triggered the relapse by buying up gold, removing it from the U.S. monetary base. The move to prevent inflation succeeded all too well, causing deflation. Whatever the cause, Britain and other trading partners were dragged down, and U.S. output plunged and didn’t fully recover until America’s entry into World War II. “We are really at a kind of 1937 moment now,” says MIT’s Temin. “It’s a cautionary history for us.”
Now as then, getting out of the doldrums will take concerted international action. Any country that tries to stimulate growth alone is vulnerable to leakage; a lot of the buying power that it gins up gets spent on imports, so it doesn’t help domestic production or employment. Likewise, a country that wants to free-ride on its trading partners can cheapen its currency, allowing it to export more (and create jobs) while importing less (hurting employment abroad). That’s the very definition of beggar-thy-neighbor economic policies.
Keynes devised a solution for such behavior that he pressed for in his last years, but he was defeated at a conference in Bretton Woods, N.H., in 1944 by his American counterpart, Harry Dexter White, a senior official at the Department of the Treasury. Keynes called for an “international clearing union” that would strive to keep trade and investment in rough balance.
The problem then, as now, is that creditor countries had all the power. They could demand that debtor nations pay interest on old loans instead of, say, feeding their children. Debts must be honored, of course. But Keynes understood that creditor countries have a part to play. They should give debtor countries some breathing room by buying more of their products and services. Today that would mean Germans vacationing more in Mykonos and buying more port wine, giving the Greeks and Portuguese the euros they need to service their loans from German banks. The concept was unarguable. But the U.S., running a trade surplus in 1944, had no interest in an international body that would tie its hands. (Today it’s Germany, sitting on a massive trade surplus, that doesn’t want to be told what to do.) The outcome was a less powerful organization, the International Monetary Fund, for aid to countries with balance-of-payments problems, and the World Bank, for promoting development in the poorest countries.
The big question is whether today’s international financial architecture is up to the challenge of restoring balance to global trade and investment. The IMF, to its credit, has pivoted away from the austere prescriptions of the “Washington Consensus” that it championed through the 1990s and toward a more Keynesian perspective. “His thinking is more relevant at the current juncture than it had been in previous troughs of the global economy,” says Gian Maria Milesi-Ferretti, deputy director of the IMF’s research department.
But the IMF lacks the authority that Keynes’s stillborn international clearing union would have had, and it’s perceived in some quarters to be beholden to U.S. interests. Brazil, China, India, Russia, and South Africa are trying to set up an alternative. Germany isn’t heeding the IMF much either as it presses France and Italy to take the same austerity medicine as Greece, Ireland, Portugal, and Spain. “Flash-in-the-pan, short-term stimulus programs” aren’t the way to boost growth, German Economics Minister Sigmar Gabriel said on Oct. 20 in advance of a joint ministerial meeting in Berlin. At loggerheads, the Germans and French punted a joint proposal to Dec. 1. Eswar Prasad, a Cornell University economist and author of The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance, writes in an e-mail that Keynes’s proposed system “requires good domestic policies and a heavy dose of international cooperation,” both of which are in short supply.
So goes the fighting among the physicians as the patient ails. Keynes saw the same kind of flailing at the start of the Depression. “We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand,” he wrote in 1930. “The result is that our possibilities of wealth may run to waste for a time—perhaps for a long time.” Keynes himself has shown us the way out.
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KKO 8 years ago
Excellent piece, Namesake.
You wrote, "If I will listen to anybody’s advice does Mr Kwarteng think I will acquiesce to what he tells me or that of James Callaghan who was a former chancellor of the exchequer and much fam ... read full comment
Excellent piece, Namesake.
You wrote, "If I will listen to anybody’s advice does Mr Kwarteng think I will acquiesce to what he tells me or that of James Callaghan who was a former chancellor of the exchequer and much familiar with the outcome of the Keynesian prescriptions"
Unlike others of British establishment figures, James Callaghan was actually a unionist, on the left of people like Dennis Healey. It cannot get any 'redder' than that but he saw the foolishness in Keynes and turned away from it!
To date, James Callaghan has been the only British politician to have held all "Four Great Offices of State"- Home Secretary, Foreign Secretary, Chancellor and Prime Minister.I would also follow his prescription any day!
francis kwarteng 8 years ago
Dear KKO,
The Economist has this to say about Mr. Callaghan (emphasis added):
"IN MAY 1979, after his government had lost a confidence vote in the Commons, James Callaghan confided to an adviser: 'There are times, perh ... read full comment
Dear KKO,
The Economist has this to say about Mr. Callaghan (emphasis added):
"IN MAY 1979, after his government had lost a confidence vote in the Commons, James Callaghan confided to an adviser: 'There are times, perhaps every 30 years, when there is a sea change in politics...I suspect there is such a sea change, and it is for Mrs Thatcher.'”
He was right, and his ministerial career was soon over. It had followed an unusual trajectory. MR. CALLAGHAN WAS A CONSPICUOUSLY BAD CHANCELLOR OF THE EXCHEQUER, A PLODDING HOME SECRETARY AND AN UNDISTINGUISHED FOREIGN SECRETARY. Surprisingly, he was then an impressive prime minister, negotiating a way through Britain's worst post-war economic crisis with a steady nerve and sureness of touch. Both, however, deserted him almost entirely during his last few months in Downing Street…"
KKO, do you have any idea how Callaghan messed up the country only for Margaret Thatcher to come in and clean it up?
Do you even have any idea why Margaret Thatcher easily beat your idol, Callaghan? The United Kingdom was referred to as "the sick man of Europe" under your idol Callaghan.
Have you heard of "the Winter of Discontent"? Read about it! I am very difficult to deceive, you know! Fortunatley, I am familiar with almost all of Baidoo's sources/reference and on that account know where he is deceiving his readers!
Well, there is a vast body of literature on the policy failures of Callaghan which Baidoo's article conveniently ignored. Baidoo is a calculating illusionist!
I will not go into that for lack of time but you can start your own research with The Telegraph piece here, "MARGARET THATCHER: NEVER FORGET THE CHAOS OF LIFE BEFORE":
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Margaret Thatcher took over a country on the brink of social and economic ruin. Cleaning up the mess she inherited is the true mark of her greatness!
Every separate group in the country had no feeling and no sense of being part of a community but was simply out to get for itself what it could.” As you might expect, such was the assessment of a former Labour politician. But this was not the late Peter Shore reflecting on the Britain that Margaret Thatcher created. He was talking about the Britain she inherited.
On January 15 1979, Shore joined the prime minister, James Callaghan, and the rest of the Labour cabinet to discuss whether the national situation had deteriorated so seriously that troops should be brought onto the streets and a State of Emergency declared.
Doing so was a gamble. But this was the 1970s: the last Conservative prime minister, Edward Heath, had declared a State of Emergency on five separate occasions in his three and a half years in office. Labour succeeded him in 1974 with the expectation that it could use its leverage with the trade unions to end the wave of strikes that had foreshadowed Heath’s downfall. By the end of 1978, they found themselves contemplating the same drastic action.
On this occasion, Callaghan’s cabinet preferred to give the threat of a State of Emergency time to work. Union leaders were warned that unless they restored order in their ranks, the army would be deployed to undertake essential services and become, in the lingo of the time, “scab labour”.
Among those sitting anxiously around the cabinet table was the Transport Secretary, Bill Rodgers, whose mother, dying from cancer, was unable to get the chemotherapy drugs she needed because they were subject to a union blockade at Hull docks. Two years later, he was one of the “Gang of Four” of prominent Labour politicians who, despairing of their own party, founded the SDP.
Nurses and ambulance drivers were on strike. Old people’s homes and schools were closing. The railways were not running. The electricians’ union marked the approach of Christmas 1978 by taking both BBC One and BBC Two off the air. The country was left with just ITV, to watch (the electricians waited until August 1979 to switch off ITV for 75 days).
More seriously, rubbish was piling high in the streets, creating a health hazard. The most potent metaphor of national decay was in Liverpool. There, a factory was being turned over to storage space for the dead because members of the GMWU union were picketing the cemeteries. Contingency plans were made to bury the city’s rotting corpses at sea.
It is worth recalling what Britain was like before the advent of Thatcherism. Doing so dispels the now prevalent notion that Margaret Thatcher created a nation of selfish individuals thinking only of their own gain and acting without a care for the needs of others. It also helps explain why, in the early Eighties, there were millions of ordinary Britons who continued to believe that her tough and, at times, distasteful, medicine would eventually work. The alternative – so-called consensus politics – had certainly been given long enough and had bequeathed a country commonly derided as “the sick man of Europe”.
We must not, of course, judge the pre-Thatcher decade purely through the particularly bitter months of the 1978/79 winter of discontent alone. The Seventies were not all bad. But the overriding sense was of living in a country that had lost its way. One newspaper welcomed in the new year of 1977 with the observation that “Britain is a country that resents being poor, but is not prepared to make the effort to be rich.” It was a sentiment shared by the Sex Pistols’ snarl, “There’s no future, in England’s dreaming.”
The country in the mid-1970s had witnessed the strikes and power shutdowns of the “three-day week”, a stock-market crash, a secondary banking crisis, tough credit controls and the humiliation of its begging mission to the IMF for a loan. “Britain is a tragedy” Henry Kissinger, the US Secretary of State, lamented to President Gerald Ford, “it has sunk to begging, borrowing, stealing.”
It had also resorted to high taxation. By the decade’s end, the standard rate of income tax was 33 per cent, the upper rate, 83 per cent. Businesses were hit by corporation tax at 52 per cent. Talent voted with its feet, bringing the expression “brain drain” into vogue.
There was also the threat of hyperinflation and the incomes policy devised to combat it. Government and union leaders met and fixed nationwide pay “norms” that not only determined maximum pay rises for the
30 per cent of the workforce who were in the public sector, but also for many in the private sector, too. Many medium- and large-sized private companies were legally obliged to send proposed price increases to the Price Commission, whose civil servants would rule on whether to approve the rise according to a wage-to-price rise formula laid out in its Price Code.
That inflation might be better controlled by market forces than by bureaucrats second-guessing whether thousands of companies were charging a “fair” price demonstrates how Thatcher changed attitudes. But, even here, she initially sailed against received opinion – and not just from her Labour opponents. The SDP-Liberal Alliance fought the 1983 general election pledging to restore both the incomes policy and the Price Commission. The Alliance’s manifesto promised to introduce a counter-inflation tax on those private sector companies that government officials decided were “paying above the pay range”. Such ideas now seem preposterous. It is Thatcher’s victory that has made them so.
How much was all this personally her doing? Might a “wetter” Conservative leader have achieved the same results without generating half the rancour, division and hatred? Some Tory policies, such as the sale of council houses, probably would have been enacted without her. With the privatisation policy, she initially had to be emboldened to think big by her Chancellor of the Exchequer, Nigel Lawson.
Yet, it was when crises struck that she showed her indispensability. After Argentina invaded the Falkland Islands in 1982, her Defence Secretary, John Nott, calculated that the majority of the Cabinet – and of Parliament – would have accepted a peace plan negotiated by Francis Pym that allowed the military junta in Buenos Aires to flood the islands with Argentine “settlers” pending an international verdict on the islands’ ultimate sovereignty. Thatcher was prepared to make this a resignation issue. Other alternative prime ministers might not have done. Luckily for her and the Falkland islanders, the Argentinians rejected the deal.
Thatcher articulated a clarity of purpose that few in British politics have subsequently mastered, or attempted. “The whole direction of politics in the last 30 years,” she contested in 1981, “has always been towards the collectivist society. People have forgotten about the personal society. And they say: 'Do I count, do I matter?’?”
It was a boldness of expression that led to her infamous “no such thing as society” assertion to Woman’s Own magazine in 1987. In fact, the phrase has been so taken out of context as to have had its meaning reversed. She was criticising those who did nothing to help other people by using the excuse that it was up to “society” to do it. Her following sentence was, “There is a living tapestry of men and women and people, and the beauty of that tapestry, and the quality of our lives, will depend upon how much each of us is prepared to take responsibility for ourselves and each of us is prepared to turn round and help by our own efforts those who are unfortunate.” Far from being an ode to selfishness, it was an appeal for good neighbourliness.
That so many people have come to assume that Britain in the Eighties was led by someone who wished to atomise society demonstrates how few solutions were found to the simmering social tensions inherited from the previous decade. The impression is now fixed that the social tapestry was unpicked in the 1980s through towns and regions wrecked by unemployment, crime and the further erosion of the traditional family structure. The extent to which these were both interrelated and the result of government policy continues to divide opinion now as it did then.
In 1990, Thatcher was forced from office by her own party. Her public standing had been tarnished by her commitment to the ill-conceived poll tax. However, it was her determined opposition to the establishment of a European single currency and the federal Europe she believed it would ensure that incited first Sir Geoffrey Howe and then Michael Heseltine to instigate her fall. She does not now look to have been so evidently on the wrong side of that argument.
And what of our modern discontents? Thatcher’s government was the last in Britain to become a net repayer of national debt. Not for her the massive borrowing and deficits of Gordon Brown’s stewardship at the Treasury. Faced with similar burdens, the countries of southern Europe that have done least to introduce the market reforms she pioneered are the ones that are now in the deepest crisis. This is not a coincidence. Salvation does not lie in the return of militant trade unions, measures to raise the cost of hiring employees and crippling levels of tax and red tape.
Combine the reimposition of these millstones with a Britain locked into the euro that her opponents supported, and it is not hard to envisage a country ripe again for a State of Emergency.
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Kyei 8 years ago
Listen to yourself, it's because of the ideas of Keynes that is why he messed up. And Kobina is right Callaghan was wise to have seen and admitted that. It is only wise people who are able to admit their mistakes.
Listen to yourself, it's because of the ideas of Keynes that is why he messed up. And Kobina is right Callaghan was wise to have seen and admitted that. It is only wise people who are able to admit their mistakes.
Philip Kobina Baidoo 8 years ago
Thank you Kyei. And I will add this that Bloomberg article is ostricha-like mentality. Coy admits that the Keynesian prescription leads to inflation, yet he will apply Paul Volcker's medicine to cure it. This is insidious. Le ... read full comment
Thank you Kyei. And I will add this that Bloomberg article is ostricha-like mentality. Coy admits that the Keynesian prescription leads to inflation, yet he will apply Paul Volcker's medicine to cure it. This is insidious. Let me quote what Keynes himself said to those who can reason. 'The best way to destroy the capitalist system is to debauch the currency.' Inflation destroys everything. Think about it. Thank you.
Philip Kobina Baidoo 8 years ago
Thank you Kyei. And I will add this that Bloomberg article is ostrich-like mentality. Coy admits that the Keynesian prescription leads to inflation, yet he will apply Paul Volcker's medicine to cure it. This is insidious. Let ... read full comment
Thank you Kyei. And I will add this that Bloomberg article is ostrich-like mentality. Coy admits that the Keynesian prescription leads to inflation, yet he will apply Paul Volcker's medicine to cure it. This is insidious. Let me quote what Keynes himself said to those who can reason. 'The best way to destroy the capitalist system is to debauch the currency.' Inflation destroys everything. Think about it. Thank you.
francis kwarteng 8 years ago
KKO & Baidoo,
Baidoo, if you have nothing substantial to say about Coy’s brilliant article, stay quite. His article is more intellectual and forceful than your limping one.
What policies did Callaghan put in place du ... read full comment
KKO & Baidoo,
Baidoo, if you have nothing substantial to say about Coy’s brilliant article, stay quite. His article is more intellectual and forceful than your limping one.
What policies did Callaghan put in place during his Chancellorship at the Exchequers that made him a "bad Chancellor of the Exchequer" as The Economist piece put? Was he a Keynesian economist at the Exchequer?
Did Keynesian economics also make him "an undistinguished home secretary" and a boring and ineffective foreign secretary? What has Keynesian economics got to do with these negative qualities associated with Callaghan?
And since you can think, could you tell me why Callaghan’s anti-Keynesian policies made matters worse for the Britain? Shouldn’t his better ideas have eradicated the so-called problems Keynes’ ideas created? Well, tell me this: What alternative economic theory did Callaghan originate to solve the problem?
And does the fact that Coy’s article mention that Keynes’ theories could not explain stagflation mean the entire Keynesian system is dead? What sort of thinking is this? If all the ideas of Milton Friedman and Paul Volkers are relevant and reliable, why is the global economy in crisis? Why haven’t fall on them to get us out of global recession? Perhaps we should ask: Why is the world listening to Keynes than to Callaghan?
Well, you are telling us how Volker’s policies doubled America’s debt-to-GDP ratio over (during a 10-12 period)? Why did Ronald Reagan fire him if he was all that you say he was and is? Could you tell me why under Volcker’s care at tens of thousands of Americans lost their jobs, while many banks and businesses failed, as well his policies leading to unemployment, untimely deaths, bankruptcies (millions), and suicides?
What did his policies (increased/high interest rates) do to American farmers? And why would Bernanke criticize Volker, saying the latter’s tendency to increase interest rates were the bases of unemployment under his tenure? Could you explain to me why bankers chose to invest their money outside American than in America under Volker’s tenure as Fed Chairman...................................................................
You can only discuss inflation in terms of Keynesian economics, how about the fact that economic/econometric models based on Keynesian economics is used in prominent places as the Wall Street Journal says of the Nobel Laureate Keynesian economist, Dr. Lawrence Klein (with emphasis):
“Mr. Klein was the first to create the statistical models that embodied Keynesian economics, an important influential tool that is still used by the Federal Reserve (OF WHICH VOLKER SERVED AS CHAIRMAN) and other central banks, as well as by private forecasters," Harvard professor Martin Feldstein said Monday…
A promising economist from a young age, Mr. Klein correctly predicted that the U.S. economy would prosper after World War II thanks to increased consumer demand, rather than return to recession as some economists feared. The prediction helped lend credibility to econometric modeling, then in an early stage of development. His computer-driven models, some of which now factor in almost 2,000 economic variables, are used today by the International Monetary Fund, the World Bank and other institutions, Mr. Behravesh said…
In addition to winning the Nobel Prize, Mr. Klein was the recipient in 1959 of the John Bates Clark Medal, an award from the American Economic Association for contributions by an economist under age 40. In his Nobel citation, the prize committee stated that "few, if any, research workers in the empirical field of economic science, have had so many successors and such a large impact as Lawrence Klein."
He later served as president of the American Economic Association….
Olivier Blanchard, the IMF's economic counselor and director of its research department, said Monday: "Larry Klein moved macroeconomics from qualitative to quantitative descriptions, based on econometric estimation of relations between macroeconomic variables. At the time, this was quite a tour de force. Macroeconomics was never the same after that."
So you see Keynesian economics is not only about inflation? Could you ask Mr. Paul Volker what he made of the Keynesian econometric/economic models when he in the federal government? Yet Volker was a “Keynesian” to a certain extent, He was dogmatic about deregulation. He was a plodding de-regulator. Who reduced America’s debt-to-GDP ratio as Clinton took over? Could Baidoo tie Volker’s failures to keeping inflation down?
Baidoo should tell us how Volker’s policies contributed the crisis faced by the Detroit automotive industry and how Volker’s policies contributed to the City of Detroit’s financial crisis. I would rather Baidoo keep a little bit quite where he lacks factual knowledge on basic ideas. Or ask more questions instead.
All that the socialist want is free like lunch. They are just bunch of lazy bastards.
PKB at his worst in distortion .Ghana gave up Nkrumaism since 1966 anf Ghana has sunk.No nation using capitalism has developed since 1945 The hard working capitalist came and took lazy"" Africans as slaves to work their far ...
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You spoke my mind. I have been following PKB's writings and instead of focusing on the essential alternatives we crave for, it's rather lamentable that he sought to discredit everything about Keynes. (Just passing by)
Come on, how old are you? Ghana’s economy was on its knees by 1965. Ghanaians could not find the most basic things in life by that time. Why did Kodwo Addison advise Ghanaians to “spread palm oil on their bread if they co ...
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KKO what does the article have to do with Ghana. In 1965 there were difficulties in Ghana as you stated but that happens everywhere as a matter of fact I was there and I lived through it. During the depression in the US peopl ...
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That is our problem as a people. We jump on something with little understanding and it becomes our mantra. I responded to Kojo T's comment, which made reference to Ghana 1965!
I saw a bit of colonial Ghana and also lived ...
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Contradiction galore. From 45 no capitalism but American capitalism causes the British bust.
Hello Kojo T, KKO has said it all so there is no need to add to who he wrote. Thank you.
Some of them actually want free lunch, but the rest who are genuine and honest in their aspiration to help the poor don’t know that eventually it makes everybody poor.
Title: "John Maynard Keynes Is the Economist the World Needs Now"
Source: Bloomberg Business
Author: Peter Coy
Date: October 30,2014
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Excellent piece, Namesake.
You wrote, "If I will listen to anybody’s advice does Mr Kwarteng think I will acquiesce to what he tells me or that of James Callaghan who was a former chancellor of the exchequer and much fam ...
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Dear KKO,
The Economist has this to say about Mr. Callaghan (emphasis added):
"IN MAY 1979, after his government had lost a confidence vote in the Commons, James Callaghan confided to an adviser: 'There are times, perh ...
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Listen to yourself, it's because of the ideas of Keynes that is why he messed up. And Kobina is right Callaghan was wise to have seen and admitted that. It is only wise people who are able to admit their mistakes.
Thank you Kyei. And I will add this that Bloomberg article is ostricha-like mentality. Coy admits that the Keynesian prescription leads to inflation, yet he will apply Paul Volcker's medicine to cure it. This is insidious. Le ...
read full comment
Thank you Kyei. And I will add this that Bloomberg article is ostrich-like mentality. Coy admits that the Keynesian prescription leads to inflation, yet he will apply Paul Volcker's medicine to cure it. This is insidious. Let ...
read full comment
KKO & Baidoo,
Baidoo, if you have nothing substantial to say about Coy’s brilliant article, stay quite. His article is more intellectual and forceful than your limping one.
What policies did Callaghan put in place du ...
read full comment