Other peoples money

Disclaimer: I'm not socialist or conservative but I do defend both of these points of view. Obviously most systems in Europe are a strong mixture of both. But this post does deal with politics-led economics, concluding that it's all based on bad dogma.


Margaret Thatcher famously said, “The problem with socialism is that you eventually run out of other people’s money.” Now Thatcher was sometimes right and sometimes wrong but mostly she didn't have a clue what she was doing from one moment to the next. However that was actually an essential part of her credo. She like Reagan, believed that government can't possibly ever do anything right so we need to leave the free-market to try to solve everything by using a hands-off approach. She lived up to both parts of that credo. Let's reflect on what she achieved impartially:


Good parts;
.Reduced inflation to record lows,.
.Controlled the trade unions, who had previously been totally destructive.
.Deregulated the credit process. Eventually this led to cheap credit. The engine of economic recovery must start with cheap credit surely.
.She was right that the tax regime was barmy. By reducing the top tax she actually got more overall tax revenue.


Bad parts:
.Inflation reduction was achieved by massively increasing unemployment in a very bad recession where Britain lost virtually all of it's traditional manufacturing base; ie the thing that made Britain rich in the first place. Workers were too afraid of being out of work to strike. One might ponder which situation is better; the slow stagnation effect of the left or the rapid descent and start again effect of the right.
.Actually making things and selling them was replaced by the city of London selling reams of worthless paper. Boom and busts were made worse. The cheap credit led to a housing boom because flipping a house was more profitable than working and sometimes the only alternative in a job-free marketplace.
.Homelessness rocketed upwards.

Other stuff she did was probably a net zero. She didn't control public spending but in fact increased it largely because of all the extra unemployment benefit. Much of Britain's GDP recovered largely due to North Sea Oil revenues, most of which was squandered and which is now running out. Nuclear power was stopped but replaced by natural gas power. While she reduced the income tax, she massively increased VAT and introduced a whole slew of other taxes -  a practice which Blair/Brown copied.

Blair of course used Thatcher as his role model, with no intention of moving back to an industrial Britain. The phrase "metal-bashing" came to replace the word "engineering" in governmental circles which illustrated the utter conptempt the political classes held for it. In Blair's government, most of them had never done a real job - they were politicians straight from college. John Major was a kind of stop gap middleman between these two larger personalities. So it's fair to say that what Britain has now is due to Thatcher rather than Blair - for better or worse, depending on your dogma.

But back to the original socialist put-down phrase "other peoples money". Now you might be thinking, like me, that it's capitalism that seems to rely on other peoples money rather more than socialism. And you might even notice that "eventually running out of other peoples money" is a perfect description of the current financial crisis. But it gets even odder than that. The US and the UK, the followers of Thatchers faith, grounded as it is in the utopian Chicago economics* of regulation-free markets and rational decision-makers, are the ones in deep debt and they got most of that debt from the most socialist regime on the planet who just happen to have all the money now: China. Oh irony of ironies! Another irony appears by realizing that China got all that wealth by building and selling things - just like Britain had! Lesson learned? Not yet it seems!


*You know the crowd - they used Smith's mere metaphor of an "invisible hand" as a godlike doctrine. One presumes this is a reflection of our soundbite world where a phrase has more meaning than an entire book. Clearly none of them actually even read Smiths book.

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