Survey: Thatcher Ranks as Top Post-WW II British PM - Page 9

Scucca · 04-29-08, 09:21 AM

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Originally Posted by donsutherland1

It was not the Bank of England's fault that Britain was in the midst of a then decade-long secular move away from manufacturing, that the manufacturing industry had not regained its pre-1973-75 recession peak, and that the industry had been shedding jobs since the 1960s.

The Bank was not independent. It was largely impotent. Generating a recession that quadrupled unemployment was certainly the fault of the Tories. That they ensured negative deindustrialisation, and the destruction of the manufacturing base, simply cannot be denied. One certainly cannot pollute the Phillips Curve empirical analysis and suggest that there was a temporary correction to eliminate inflation problems.

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It was not the Bank of England's fault that chronic underinvestment, in part due to tax disincentives, had eroded Britain's economic competitiveness.

The British government did nothing to eliminate our problem: production of relatively inferior product. Indeed, as I mentioned, they actively encouraged it via low wages. Britain's R&D problems are also corrupted by its obsession with the military sector. Can you show any evidence that the Tory regime were able to eliminate the crowding-out problems generated by the British arms industry?

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It was not the Bank of England's fault that the national government had taken over a range of enterprises and jobs and companies that might otherwise had disappeared were being propped up by federal aid.

State intervention is required when faced with market failure. Its something the Tories realised when they nationalised Rolls Royce. Take the previous example of the coal industry. We've already seen that mines weren't closed according to productivity criteria. It gets worse when we consider viewpoints such as Hudson and Sadler (1990, State policies and the changing geography of the coal industry in the UK, Transactions of the Institute of British Geographers, Vol. 15, pp. 435-454): ”Present policies- which are likely to lead to further dramatic reductions in UK deep-mined coal production- are far from rational either in the sense of the relations between the UK and the world energy market, or the appropriate use of valuable and finite UK energy resources”

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Britain's economy was in a weakened state when it became necessary for the Bank of England to wage its decisive fight against roaring inflation.

Reducing output by levels more severe than the Great Depression is not a rational counter-inflationary policy.

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To its credit, the Bank did not shrink from its objective.

The abolition of exchange controls ensured that the Bank of England's money supply techniques were ineffective. And don't forget, we've already gone through how the Tories had to react to the economic errors they made: Given unemployment and monetary policy failure, privatisation became a means to circumvent fiscal constraints.

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Finally, Monetarism has evolved quite a bit. It is not dead, at least not in the sense of Marxism that has been widely abandoned (except in a few unfortunate, isolated, and misery-strewn pockets e.g., North Korea) and truly relegated to the texts and archives.

Monetarism's only purpose is to provide an overly simply introduction to macroeconomics. Thus, the young whippersnapper is given a diet of bastardised Keynesianism and is then offered monetarism as a “yeah but” moment.

Your comments about Marxism are alien to me. We actually have to refer to Marxist analysis to understand the nature of the economy. For example, capitalism's tendency to produce involuntary unemployment- via efficiency wage theory- is essentially lifted straight out of Marxism 101.

donsutherland1 · 04-29-08, 09:54 AM

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Originally Posted by Scucca

State intervention is required when faced with market failure.

I have never argued against any kind of state intervention. Mixed economies are the norm; laissez-faire ones are not. However, every failing company and every failing industry does not nor should not bring about state intervention. Such intervention should be limited to the small number of industries that are strategic in nature and companies whose failure would entail systemic risk (and developing countries can make a case for intervening in the case of infant industries). The decision should keep in mind all likely tradeoffs, including opportunity costs, as well as realistic prospects for revitalization.

During the 1970s, I believe Britain went too far in terms of nationalization and those efforts weakened the British government's finances, diverted resources from more competitive sectors toward flagging state-owned enterprises, and contributed to the structural weakening of Britain's economy. During that time, one could perhaps make the mitigating argument that Britain's political leaders did not have a long experience on which to draw with respect to such moves. Today, the accumulated experience from that time, argues for a much more limited and focused approach to government intervention.

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Your comments about Marxism are alien to me. We actually have to refer to Marxist analysis to understand the nature of the economy.

I believe you attached a much more sweeping interpretation to my comment. I was not discussing Marxist analysis per se. That framework will likely remain a tool in textbooks. I was strictly referring to the practical employment of Marxism as a basis for organizing economies and, barring big changes (which can never be ruled out), full-fledged Marxist economies are largely a thing of the past.

Scucca · 04-29-08, 10:21 AM

Quote:

Originally Posted by donsutherland1

I have never argued against any kind of state intervention. Mixed economies are the norm; laissez-faire ones are not. However, every failing company and every failing industry does not nor should not bring about state intervention.

As we've seen, it was difficult to justify the British privatisation programme. Given its political nature, the economics was largely ignored. The most obvious example are the utilities, where monopoly power conditions were generated and the regulatory framework adopted was insufficient to protect the consumer.

In terms of the examples you've given, it is easy to construct arguments in favour of the nationalisation process. The coal industry should have been protected as part of a long run energy policy. The car industry was dominated by concerns about economies of scale and therefore the need for direct government involvement. Do you have any other examples for us to consider?

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I was strictly referring to the practical employment of Marxism as a basis for organizing economies and, barring big changes (which can never be ruled out), full-fledged Marxist economies are largely a thing of the past.

You should have referred to communism, given its distinction from the classical economic analysis of Marxism (and the crackpots that fester under the Leninism banner). Whilst I'm not a Marxist, it is clear that it is a vital aspect for our understanding of economic relations. Unlike 'dead as a parrot' monetarism, it remains vibrant.