Austerity economics – how it failed 35 years ago


Since winning the 1979 General Election, the Conservatives had embarked on an economic policy described as ‘monetarism’   This entailed rigorous control of the money supply in order to curb the great British disease of inflation.  The outgoing Labour Chancellor of the Exchequer Denis Healey, no stranger to cutting government spending himself, had dubbed the new creed as ‘sado-monetarism’.

9780436164859-uk-300The high priest of monetarism was a professor at the Chicago school of economics by the name of Milton Friedman.  Without going too far in to the vast detail that any debate on economics can become mired in, Friedman essentially threw out the conventional Keynesian wisdom that in a depression, governments should spend to keep people in work.

Out of control public spending, he argued, would lead to something called ‘stagflation’ – stagnation with high inflation – which was a prevalent condition of many economies in the 1970s.  The answer was a kind of shock therapy where high interest rates, as one weapon, would make it unattractive to spend money.  This would then lead to restraint in wages and prices, which would result in inflation coming down.

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JK Galbraith

Oh that life was so simple, Keynesians retorted angrily – in many newspaper columns and on the letters pages.  Friedman’s leading Keynesian nemesis on the global stage was the elderly but highly alert J K Galbraith, who had served in President Franklin Roosevelt’s administration steering through the New Deal.  He warned over and over again that Friedman’s medicine would lead to idle industrial plants and high unemployment.

Just because it hurt, Galbraith thundered, didn’t mean monetarism was actually doing any good to Britain.

“Suffering must have a purpose: out of much suffering there must come much good.  No one is quite sure how this works in economics; one only knows that the bad times are somehow the price of the good.  Pain and punishment are considered especially salutary for other people.”

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General Pinochet – enthusiastic supporter of austerity economics

So agonising were the effects of monetarism that many on the left pointed out that in its most undiluted form, it had only successfully been applied in Chile – which still languished under a military dictatorship.  The implication being that a democracy could not hold the lid down on a population tormented by the rigours of this doctrine.

Within the trade unions, the widespread suspicion was that the Conservatives were using high levels of unemployment deliberately to beat down pay demands.   With an instinctive hatred of state regulation of the economy, Thatcher didn’t want to get involved in imposing incomes policies (as Labour had tried to do in the 1970s) but fear of the dole, it was thought, was her preferred weapon against wage inflation.

In reality, the Conservatives quietly dropped monetarism and adopted a more pragmatic and less doctrinaire approach after 1982.  But not before they would experience a bitter lesson from Britain’s hugely pissed off youth on how far you can pursue an experiment before the subject bites back.

After the Liverpool riots – students make a big mistake


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Liverpool police chief Ken Oxford was hated by local black youth

July, 1981 saw riots in the Toxteth district of Liverpool that arguably eclipsed the violence seen in other countries during that same long summer. When I arrived as a fresh faced undergraduate that October, our college bus would go from the halls of residence through Toxteth and the scene was one to make any middle class kid from southern England gulp. Houses gutted and charred and entire buildings flattened.

You might have thought we students at the university would have chosen to keep a low profile and maybe not antagonise the local youth – particularly the black youth of Toxteth who suffered high levels of unemployment and social deprivation at that time. But you wouldn’t have reckoned with the university Law Society. They decided it would be jolly interesting to hear from the Chief Constable of Merseyside, Ken Oxford.

To say that Oxford was a controversial figure would be putting it mildly. Neither the political left in Liverpool or the youth of Toxteth had a kind word to say about him. Nevertheless, in December of 1981, Oxford was asked to address a Law Society meeting on the university precinct. I should point out that said precinct may have felt remote from Toxteth but was actually a mere stone’s throw (pardon the pun) away.

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University daubed

Before Oxford spoke, a spokeswoman from the Liverpool 8 Defence Committee was allowed to make a statement.  She proposed that Oxford be turned away because he was responsible for the ‘murder’ of David Moore (a disabled youth who died during the riots after being hit by a police van), the use of CS gas (first time on the British mainland – it had been used in Northern Ireland) and the report he himself had done on the riots was, the spokeswoman opined, a ‘whitewash’.  Her motion was rejected “with a loud ‘no’ from the floor” and no vote needed to be taken.

Oxford got on with his speech saying that the police didn’t go out of their way to recruit racists and he felt the main problem facing him was a lack of finance and the attitude of the community.  It was noted that he didn’t think there was anything seriously wrong within the force itself.

He hadn’t concluded his remarks when about thirty members of the L8DC burst in to the Moot Room, where the meeting was being held, screaming “Fucking burn the police!”, “Fucking University”, “Burn the Place Down!” and “Students are guests in this city”.  Carl Chapman, vice-president of the Law Society, tried to encourage the protestors to leave but only when Oxford himself departed early, did the room empty out.

Buildings around the precinct were subsequently daubed with comments to the effect that the student body was racist.  This wasn’t the only time that the university was subject to spray can comments from locals.  Professor Patrick Minford in the Economics Department was one of Thatcher’s key advisers and his call for massive public expenditure cuts met with a graffiti response in jumbo-sized letters all over the faculty exterior.