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.

RV-AA080_GALBRA_DV_20100921215155
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.”

pinochet2
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.

How the jobless tried to amuse themselves in the Thatcher years


It’s impossible to imagine now how endemic youth unemployment was between 1979 and 1983. In the Toxteth area of Liverpool, about 90% of the youth had no work. One survey in London estimated that 26% of young unemployed had contemplated suicide.

Still, it spawned a rather dark sense of humour…

IMG_6395

Political badges from the 1980s


Emptying out my parents’ attic as they downsize, I opened a tatty plastic bag and out fell a load of political badges from the 1980s. These were worn with pride on my lapels at various demos back in the day. They date from about 1979, when I’d have been 16 years old through to around 1984 and the miners’ strike. As a snapshot of what we fought, cared and fretted about – they’re truly fascinating. And the language now seems a bit dated on some of them.

Badges of the 80sBadges of the 80sBadges of the 80sBadges of the 80sBadges of the 80s Take a look at the photos below and I’ll just chat through some of them. Nuclear arms – big obsessions. There were surveys at that time where most young people honestly believed there would be a nuclear catastrophe in their lifetime. Remember we had the Soviet Union versus Uncle Sam and in 1981, I went on the massive CND demo to Hyde Park. I remember one old dear screaming at me that I was as bad as those Hitler loving pacifists in the 1930s Peace Pledge Union. Another big demo that year was the People’s March for Jobs and you can see a big badge there for that.

The 1981 Brixton riots put the focus on the SUS laws – stop and search by police, which impacted on black kids a lot more than white. And it’s still an issue today – how depressing!  The anti-racist badge saying “will you choose to abuse” seems a bit patronising and corny now – your views? Note the brilliant badge with Home Secretary William Whitelaw and his detergent that would whitewash police tactics over Brixton – still think that’s amusing.

On the global front – you had Chile under the Pinochet dictatorship and of course we all know how much Thatcher liked him. There’s also a Polish Solidarnosc badge as the movement against Stalinism in that country took hold – then faltered. Spain had emerged from the Franco dictatorship and the socialist party – the PSOE – was about to take power. Though the promised socialist revolution never materialised.

Rhodesia gave way to Zimbabwe at the end of the 70s and you can see a badge there. Ireland and the ‘Troubles’ were a constant feature with bombings in the north and on the mainland UK. In 1979, Lord Mountbatten was blown up. Thank goodness that all seems like ancient history now.

Above all else – there was a visceral hatred of Thatcher. When I watch all these 80s progs saying we were all yuppies in that decade, it makes me furious. Nobody who was there would recognise that narrative. We were heavily polarised as a country. You either loved Maggie or hated her – and your style of dress and badges reflected that.

Predictions for Maggie’s future – from 1979


The Economist
The Economist – December 1979

Maggie had been in power for eight months at the end of 1979. The Economist magazine (broadly sympathetic to her aims) was making its predictions for a new decade – the 1980s. So how did The Economist think Thatcher was going to fare in the years ahead?

Well, the next election was due in 1984 and they thought that was way too close for a government rapidly losing the level of popular support it had enjoyed in the May, 1979 General Election.

Like Cameron today, Thatcher was pleading for more than one term in office to achieve her aims but at the end of 1979, the polls were suggesting Labour would come back to power. The Economist thought the Labour faces just rejected by the electorate – Peter Shore, Dennis Healey, John Silkin – would be back in ministerial posts.

And there wouldn’t have been much surprise there. After all, through the 1960s and 1970s, Labour and the Tories took turns in power. Nobody would have thought in 1979 that Thatcher would last to 1990. The Economist believed it was “conceivable” that Thatcher would be dumped as Tory leader before 1984.

Europe was a big problem for Thatcher – senior Tories were horrified by her roughing up of the EEC (as the EU was called then). Foreign minister Lord Carrington was seen as a restraining influence on the Prime Minister (he would resign when the Falklands War broke out).

The Economist wrote that Carrington and Home Secretary William Whitelaw might move to “bell the cat” – put Thatcher under firm control and force her into a U-turn towards more traditional One Nation Toryism. She would be forced to adopt a more Ted Heath approach or resign.

The revival of the Liberal Party made a Lib-Con coalition – similar to what we have now – a real possibility. But The Economist thought that Labour – under Dennis Healey, who by 1984 would have defeated the left wing of the party – was more likely to return to power. The magazine correctly predicted that Roy Jenkins and Shirley Williams would form a new political party and for a while, that party would exercise a big influence.

So, how wrong was The Economist? The election was called early in 1983; an unexpected war in the Falklands boosted Thatcher; the Labour left put up a stronger fight and Dennis Healey did not become Labour leader; Thatcher purged her enemies within the Tory party and no bell was put on that cat!

1979 General Election – James Callaghan fights back


In the 1979 general election, a local Liberal campaigner came round to our family house and as a chatty, politically obsessed 15 year old, I got into a long conversation with her. She was convinced that the electorate would reject the right wing economics being proposed by Margaret Thatcher as too extreme. Most people, she continued, didn’t wish for a rupture with the post-war consensus – they just wanted it to work better.

I was very sceptical. Pessimistic even. I had no doubt as a political swot even by that tender age that Labour was doomed. My school was trending heavily Tory. At a mock election, the Labour candidate was treated like a leper or pariah. The Liberal was jeered and sheepishly exited the school stage as if expecting to be lynched. The Tory, by marked contrast, was cheered to the rafters. That told me everything I needed to know.

But – Jim Callaghan fought a brave campaign. And even managed to narrow the Tory lead. However….it was too little, too late.

The 1979 General Election – three rivals in the election of the century


1979 was a pivotal year for world politics – only rivalled by 2016 with the election of Donald Trump as US president. Back in 79, Margaret Thatcher swept to power in the UK followed by Ronald Reagan in the United States. It heralded an era of free market economics and initially a drift to socially conservative attitudes – especially towards ethnic minorities and LGBT people.

The election marked the end of a post-war era of political and economic consensus. Since 1945, both main parties had accepted a mixed economy – part state and part privately owned. Industry was managed in a tripartite arrangement between bosses, unions and government with formalised structures for regular talks.

State owned bodies had run the utilities and key industries with commissions regulating pay and prices. Government departments determined policy and practice in large swathes of the economy because Whitehall owned the steel, gas, mining and other sectors.

All of this came to an end in 1979. Thatcher and her free market coterie took on organised labour but also elements in her own party who preferred a “One Nation” vision of society to her more aggressively individualist vision. On the left, there was a parallel movement of Marxists and socialists who also rejected the post-war consensus but wanted a very different kind of society with workers’ control and the end of capitalism.

The 1979 election saw three main protagonists duke it out for the keys to Number Ten. Thatcher was by far the most energetic and with everything to win. Labour leader Jim Callaghan was more popular as a person but had dithered over calling an election for a year in which the unions had staged major industrial action – the so-called Winter of Discontent – eroding Labour’s standing in the polls. By the election, he came across as a man weary of high office.

In the middle was David Steel, the Liberal leader, who had been propping up Labour in the so-called Lib-Lab pact – as Labour lost its majority during its 1974-79 term in office. This pact would damage the Liberals, many of whose supporters switched to the Tories. In fact, Labour’s vote didn’t slump so much as the Liberals collapsed into Thatcher’s arms.

Steel (left), Thatcher (centre) and Callaghan (right)

Monotony – the game for the unemployed in 1979


There was a dark humour among the unemployed under Thatcher – many knowing they would never, in all likelihood, work again. These were people thrown out of manufacturing jobs and facing a labour market that was unforgiving if you over 35 – let alone unwilling to up sticks.

Graduates couldn’t even find summer jobs in the early 80s as the unemployed competed for shop and bar work. Dole newspapers sprang up all over the north, Midlands and London. This one developed a game for the jobless called Monotony – a skit on Monopoly.