by Adam Richardson
What Does It Mean For You? The Combat Against Keynesian Policy Rages On.
When market commentator and Q Wealth friend Samuel Kraigwest dropped this article in my inbox this morning I knew exactly why he had written it.
Last time we spoke he was lamenting that the all around the world, but in the US especially, there is the egregious notion that we are a free (or capitalist) market. But, we strongly agreed, we do not see much that resembles a free market around us…and we are not heading toward one in any way, not yet.
This is at least irritating, and often times infuriating. It’s as though all this has just been “decided”. That, contrary to what you see when you look around, we are primarily a free market system because we say so.
So what does it mean for you, our friends and readers? That we call a failing system by another name, all while blaming the system that could save us?
The only solution we can see is for each person to take responsibility for their self and their families. That’s why we do what we do here at Q Wealth. We offer personalized solutions to those that would take action. There are solutions to be found in proper planning, in making friends with the right connections, in investing where others don’t dare.
Now, read what Samuel has to say about the battle that Margret Thatcher waged on Keynesian policy. Did she, as some say, win?
Ms. Thatcher Was Just the Beginning…
By Samuel Kraigwest
Margaret Thatcher’s macroeconomic legacy … How Mrs Thatcher smashed the Keynesian consensus – Economist
The Economist tells us that Margaret Thatcher smashed the Keynesian consensus but when we look around the world today, we don’t see much that resembles a real free market. In the US, Keynesian stimulation is the norm and so it is in Britain and Europe. Around the world several hundred central banks print money – without ever knowing how much is enough and how much is too much.
Now of course, there is much talk about returning to a gold standard, but we don’t see that these concepts are translated into action. Central banks print, economies rise and then plunge based on the over-printing of money and the idea of market-based money remains elusive. Of course, The Economist seems to think the “Keynesian consensus “ is smashed, and while they might be correct hypothetically, that doesn’t seem to translate into action.
Mrs Thatcher wrought so many radical changes to British economic policy that it is easy to forget that the priority when she took office in 1979 was inflation. Nothing had so destroyed faith in previous governments as the labour and social unrest that both fed on double-digit inflation and in turn sustained it.
The main goal of her Medium Term Financial Strategy, announced in 1979, was to bring down inflation through reduced money-supply growth. It also aimed to reduce the budget deficit, both as a goal in itself and to reinforce the credibility of the money-supply targets, by removing the perceived temptation to monetize and inflate away future debt. More practically, it would keep interest rates lower than otherwise and result in less crowding out of private investment.
Against this backdrop, the 1981 budget was a watershed. With the money-supply targets and inflation still overshooting, it proposed tax increases and other fiscal tightening worth 2% of GDP, apostasy to the Keynesian consensus that then permeated academia.
Alan Greenspan remembers meeting her for the first time in 1975 at a dinner in Washington. “I thought, ‘This is going to be a tortuous evening, sitting next to a politician I don’t know,’ and we started to chat and her first sentence to me was, ‘Tell me why is that the UK does not have an M3?’ At which point I perked up quickly.” Her break with Keynes was also far more profound. While Mrs Thatcher was raising taxes in 1981, Reagan was slashing them and boosting defense spending—textbook countercyclical Keynesian fiscal policy, even if he didn’t call it that.
Even here there are questions…
Why did Ms. Thatcher want to know about M3? All of the money aggregates are notoriously unstable and even unworkable in the sense that they do not really provide a snapshot of aggregate money. All that works – to be succinct about it – is market money, and this is why there is so much discussion in the news to today about returning to a commodity money standard.
It is a nice fantasy to believe that socialist Keynesian policies are smashed. But this simply isn’t the case. At the end of the article, the Economist admits this itself:
Similar perspective is necessary for evaluating Thatcherism more generally. Privatisation and the rollback of socialism were causes worth rallying around when 12% of British output was from publicly owned companies; by 1997 that was down to 2%. State capitalism may be the rage in emerging markets but no rich country government today aches to nationalise its economy’s “commanding heights.”
The battle that Ms. Thatcher began is by no means ended.
When money itself is attached to some sort of object even within a larger venue of competing monies, then the goal line will be sight and sanity may begin to return to the world’s finances. Ms.Thatcher was the beginning but certainly not the end of the process.
There is far to go.
Samuel Kraigwest is longtime commenter on the markets who grew up in the US but now travels the world in search of promising investments and the ever-elusive “best martini.” Kraigwest is also a contrarian investor who uses all of his life experience and investment knowhow to communicate the hard-truths of 21st century global speculation. Please visit the following address for a no-risk sample of a global newsletter with which he is involved. https://secure.viscountmedia.com/order/sales_nigel3.html