An Extraordinary Time by Marc Levinson

Author:Marc Levinson
Language: eng
Format: epub
ISBN: 9780465096565
Publisher: Basic Books
Published: 2016-09-15T16:00:00+00:00

CHAPTER 11

Thatcher

In the warm glow of memory, cherished by generations of conservative acolytes, the global ascendancy of the right brought an end to the economic crisis that had festered since 1973. The reality was quite different. The leaders who won power by campaigning against the welfare state took aim at inflation, and with persistence and the help of some determined central bankers, they eventually brought it under control—although at a far higher cost than they had imagined. They were victorious as well in the battle against Soviet communism, and some of them were still in office to celebrate the advance of democracy across Eastern Europe at the end of the 1980s. But when it came to restoring the sense of economic security that had vanished along with cheap oil, their efforts were no more effectual than those of the less market-oriented politicians they drove from office. The combination of full employment, greater equality, and economic security proved not to be within their ability to deliver.

If there was a single theme that ran through the conservative economic thinking around 1980, it was this: rules matter. This was, in the context of recent history, a radical idea. Throughout the Golden Age and beyond, from the end of World War II to the late 1970s, economic policy had been the province of brilliant men supported by armies of data collectors and number crunchers. Experts like Arthur Burns, Karl Schiller, and Raúl Prebisch were thought to possess special economic understanding, such that they could foresee an economy’s future course and selflessly determine which measures would most improve the well-being of the largest number of people. The very presumption that government could steer the economy to full employment and low inflation assumed that someone was skilled enough to do the steering. But after the economic chaos of the 1970s, the public had ample reason to doubt the experts’ disinterested foresight. As the economist Charles Goodhart, a longtime Bank of England insider, wrote in 1989, “the failure of the monetary authorities, whether Central Bankers or Ministers of Finance, to stem inflation in the 1970s led to reconsideration whether they were working for the public good . . . or might be swayed by other political and bureaucratic objectives.”1

In the new conservative understanding, discretion was the heart of the problem. Discretion allowed politicians to spend and tax as they saw fit, without any accountability. So far as monetary policy was concerned, discretion enabled central bankers to tinker freely with interest rates even at the cost of higher inflation, as Burns had done to secure Richard Nixon’s re-election in 1972. And discretion meant that bureaucrats could regulate as they pleased, harassing citizens and infringing on personal liberties, just as they did in Astrid Lindgren’s fictional kingdom of Monismania.

In the early 1960s, the American economist Milton Friedman had laid out the case for firm rules to govern central banks’ monetary policy. Friedman contended that erratic and unpredictable changes in monetary policy—now encouraging more bank lending in response to a

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