Tuesday, April 23, 2013

Rowan BosworthDavies — How the legacy of Thatcher and Reagan made the 2008 financial crisis inevitable


The consequences of Thatcher and Reagan's Friedman and Hayek-inspired free market utopianism and market fundamentalism. Adds more detail to Bill Black's exposé.

Max Keiser
How the legacy of Thatcher and Reagan made the 2008 financial crisis inevitable
Rowan BosworthDavies

15 comments:

Unknown said...

What "free market"?

I see a government enforced/backed counterfeiting cartel, the banking system, which exists for the sake of business, the rich and other so-called "credit-worthies" at the expense of the rest of us.

But continue to blame a non-existent "free market", eh?

Bob Roddis said...

Of course, Hayek was always in favor of increased tax revenues, spending and monetarist inflationism. Which only a born liar like a Keynesian could call "free market".

Bruce Bartlett:

As this table shows, taxes as a share of the gross domestic product in Britain actually increased sharply during Mrs. Thatcher’s first seven years in office before falling in the later years. Even at the end, they were significantly higher than they were when she took office. Spending also rose during her first seven years before falling in Mrs. Thatcher’s later years.

http://economix.blogs.nytimes.com/2011/07/05/the-legend-of-margaret-thatcher/

"Thatcherism is all too similar to Reaganism: free-market rhetoric masking statist content. While Thatcher has engaged in some privatization, the percentage of government spending and taxation to GNP has increased over the course of her regime, and monetary inflation has now led to price inflation. Basic discontent, then, has risen, and the increase in local tax levels has come as the vital last straw. It seems to me that a minimum criterion for a regime receiving the accolade of “pro-free-market” would require it to cut total spending, cut overall tax rates, and revenues, and put a stop to its own inflationary creation of money. Even by this surely modest yardstick, no British or American administration in decades has come close to qualifying."

— Murray Rothbard

http://mises.org/econsense/ch62.asp

Tom Hickey said...

Bob, I don't see how that is relevant to the deregulation of finance in the name of the "free market" and the efficiency of market forces. Reagan and Thatcher, like Friedman and Greenspan, thought that the financial sector would adequately regulate itself if "unchained."

The post shows that from the get-go, deregulation was taken as a signal that "now anything goes." It seem in hindsight that the wholesale deregulation of the '80's and 90's, along with light touch oversight, was based on naiveté.

Unknown said...

...thought that the financial sector would adequately regulate itself if "unchained." Tom Hickey

While leaving in place government backing such as government deposit insurance?!

The rule should be: No regulations = no privileges either!

Bob Roddis said...

"Deregulation" of the use of the government-granted privilege of creating funny money loans while others are prohibited from such action hardly qualifies as either a "free market" or something that is "Hayek-inspired". It is precisely the regime that Austrians point to as the cause of most economic evils. The entire "argument" is based upon a grotesque distortion of the English language and the truth.

What else is new with MMTers?

Tom Hickey said...

Worse than that, F. Beard. No matter what kind of financial system a country has the government HAS to step it to rescue it in case of a market failure. There is no way to completely preclude this eventuality other than banning the use of credit, which is worse. Anyway, it would be impossible to supervise and enforce. Nor is nationalization a solution, since government can be corrupted and even captured.

This means that governments need to regulate and oversee, as well as hold firms and individuals accountable. But this has to be done intelligently, as Warren Mosler has set forth in his proposals. We also need regulators in place like Bill Black, who actually under the game and are able to act as honest and capable referees.

The US and UK essentially ruled both out in the late '80's and '90's and despite efforts to impose discipline and accountability, no meaningful reforms are in place.

Unknown said...

There is no way to completely preclude this eventuality other than banning the use of credit, Tom Hickey

Credit creation need not be banned, at least not permanently* but obviously a true free market would not have a government-backed credit cartel.

which is worse. Tom Hickey

Not necessarily:

1) The entire population (sans bankers and the uber-rich), including non-debtors, deserves restitution for theft, at least until all deposits are 100% covered by reserves. Those new reserves would allow quite a bit of honest (100% reserve) lending or at least much lower leveraging.

2) If truly private banks prove to be inadequate creators of endogenous money then ethical private money forms such as common stock could fill the gap.

* Universal restitution with new fiat would require a temporary ban on new credit creation to prevent the banks from inflating away the value of the restitution. The ban would be lifted after the restitution period and when banks became truly private businesses.

Tom Hickey said...

"Hayek-inspired"

It's true that Thatcherism was more influenced by Friedman than Hayek, but Thatcher herself did strongly credit Hayek publicly for the basis of her thinking. Broadly speaking, Friedman and Hayek were in agreement on deregulation.

Hayek and Thatcher by Ryan Bourne

In polite correspondence between the two, Thatcher was at pains to point out that the social impact of even faster adjustment might not have been viable, and that the nature of the UK as a democracy meant that Chile’s example was not directly transferable.

Dan Kervick said...

Yes, it's the legacy of Thatcher and Reagan. But Clinton and Blair were among the chief disciples.

Tom Hickey said...

It was apparently an idea whose time had come.Hopefully we are approaching the time for another idea to come to the fore before that idea destroys us.

The Rombach Report said...

"The post shows that from the get-go, deregulation was taken as a signal that "now anything goes." It seem in hindsight that the wholesale deregulation of the '80's and 90's, along with light touch oversight, was based on naiveté."

Tom - I don't know definitively what the primary factor was underpinning the robust economic growth of the 1980s..... Tax cuts? Defense spending? Monetary policy? Deregulation? In any event, the results were pretty good with GDP doubling from $3 trillion to $6 trillion amid creation of 18 million new jobs. Regarding deregulation, "Anything Goes" seems like a bit of hyperbole. Maybe the over-regulation just needed to be dialed back to allow the economy to grow.

Tom Hickey said...

Ed, I believe that it was due at least in part to the huge expansion of credit due to the "anything goes" mentality. That was unsustainable, of course.

This is the problem with credit-based systems. They lurch between boom and bust.

Unknown said...

This is the problem with credit-based systems. They lurch between boom and bust. Tom Hicky

But not with common stock monies because with no borrowing the amount of common stock should only increase, at a rate the stock-holders agree upon. Stock buy-backs? Those are mostly funded with low interest loans from the government-backed counterfeiting cartel, which any moral society would abolish.

Tom Hickey said...

There's always going to be credit as long as there is capitalism. This is what we are seeing with shadow baking as regular banking become more regulated. Credit creation just migrates elsewhere.

Unknown said...

There's nothing wrong with private credit but the banking cartel is heavily privileged by government.

Defend that, will you? But why? Common stock is an ethical form of endogenous money creation.

Or do you think "sharing" is incompatible with economic progress? But is it, considering that the current system generates enormous social costs?