Why Thatcher’s neoliberalism was the continuation of Keynesianism

by Jehu

I received this question on my ask.fm page:

“I’ve noticed that you hold a quite controversial position regarding Thatcher, when you say she was right. Do you mean that you endorse her policies? Wouldn’t it be insane for communists endorsing or proposing extreme Thatcherite policies? If not, would you mind explaining it a little better please?”

Not a problem, let me give some context for why in a certain sense, I argue Thatcher was correct about TINA:

In 1980, Margaret Thatcher argued “There is no alternative” to the policies she was pursuing. In the 36 years since she made her TINA speech, those words have been repeated on the Left as a declaration of class war. While the Left has been rightly outraged by her speech, assuming, as it does, that her neoliberal policies were a historical necessity, little or no context for her words have ever been provided by her Left opponents.

I want to provide a little of that context, in order to show that there is an aspect of TINA that was true then and remains so today. First, let’s see her words in the context of the interview she gave on the occasion of a press conference for American correspondents in London. The question was raised regarding her policies to address inflation and unemployment that had exploded in the economy. Thatcher said this:

“If you’re trying, as I said in the House yesterday to squeeze out inflation, there’s no way of doing it without some painful results. How do you justify it? The fact that if you don’t squeeze it out it will accelerate and you will get “suitcase money”. You understand what I mean by “suitcase money”. That’s why you have to do it. So it is the lesser of two evils. And the fact is that if you just go on printing more money, you’ll finish up with everyone pricing themselves out of the market and enormous unemployment, a flight from money into goods and total chaos. So that’s why you have to do it. It does take a time to work through. As you know, we’re still suffering from the ejection of the extra money coming out of the election. It takes about fifteen months to work through and then you have to squeeze. And in the end it does work to the real economy. So in a sense we do have to do it. Because there really is no alternative.”

As I said, at the time, the UK was facing an unprecedented explosion of high unemployment and hyperinflation. We are told in the dominant narrative that no one could have predicted this twin malady; which acquired the name, stagflation. Explanations were offered for stagflation from all sides in the political debate over how to address it, but no remedy appeared forthcoming.

The explosion of inflation and high unemployment did not just hit the UK; it hit all of the industrial economies of Europe and North America. Since all the most industrialized economies of the day were being hit by the same malady, it is likely stagflation had a cause common to all of them. What all of these economies had in common was that their currencies had been tied to the dollar since the time of Bretton Woods. Once the US suffered a currency crisis that forced it off the Bretton Woods agreement, the various currencies were forced to float.

At the time of Thatcher’s speech, the dollar, which had originally been tied to gold at $35 a troy ounce, had been devalued to more than $600 per troy ounce. Astonishing though it might be to realize this, the dollar had lost more than 94% of its pre-1971 official exchange rate with gold; a devaluation many might find difficult to grasp. Every country that pegged its own currency to the dollar at a fixed exchange rate found its currency rapidly devalued along with the dollar. The inverse expression of this rapid currency devaluation was massive and uncontrolled hyperinflation of prices.

In other words, the cause of stagflation worldwide was the rapid devaluation of the dollar following the collapse of Bretton Woods.

When Thatcher asserts “there really is no alternative”, in large part this is because stagflation did not originate in the UK. It began in the United States and was caused by decades of US wasteful military spending to finance its encirclement of the Soviet Union. What few people knew at the time, although the documents had just been declassified, is that, in 1950, the US deliberately provoked the cold war to justify a massive decades-long encirclement of the SU.

The simpleton economic justification for this cold war was that the defense spending would stimulate economic growth and thus finance itself. This ‘war Keynesianism’ or ‘military Keynesianism’ ultimately led to the collapse of Bretton Woods and the end of the gold standard. The gold standard had to end because ‘war Keynesianism’ could not continue if the dollar remained pegged to gold.

As most people know, military spending creates huge costs in an economy, but produces nothing of value for that huge cost. Which is to say, military expenditures are not productive and neither adds to the consumption power of society nor to its productive power. These are costs that cannot be recovered that must, therefore, enter into the production prices of all other commodities.

This is why people sometimes call inflation a hidden tax, although I think that term is misleading, because it creates the impression that without the military spending, the resources (capital) employed creating war machines will instead be employed productively. The truth is the opposite: if the resources were not employed producing war machines, the economy would be plunged into depression. Bizarre as it might seem, the capital unproductively expended on production of war machines can be spent that way because it is completely superfluous to the production of surplus value.

The only way to avoid another depression without military spending was a reduction of hours of labor as Keynes argued in 1930. In fact, Keynes reiterated this again in 1943 when planning for the economy after World War II ended.

In his own opinion, Keynesian deficit spending would likely only work until about 1960, when Keynes predicted his policies would no longer increase employment but would begin to generate inflation. It is no surprise that the forces that ultimately led to the collapse of the gold standard began to make themselves felt in the late 1950s and early 1960s.

The hyperinflation and high unemployment of the 1970s was thus completely predicted by the greatest simpleton economist of the 20th century. The source of the hyperinflation and high unemployment was none other than (war) Keynesian policies themselves, as pursued by the Americans. Those policies led to a collapse of the Bretton Woods system, the end of the gold standard and the stagflation depression of the 1970s.

This is the full context for Thatcher’s TINA statement. Thatcher’s argument was that Keynesian policies, pushed well past their necessary limits, were causing a massive economic crisis. On the other hand, Thatcher, like her American counterparts, had no desire to reduce hours of labor. So, inexplicably, while recognizing that Keynesian policies were no longer sufficient, the capitalists decided to double down on those policies.

Bizarrely enough, Thatchers statement that there is no alternative, when examined in its full context, was not a rejection of Keynesian policies but their expansion on a hitherto unprecedented scale. All that I need to prove this statement is one chart: US deficit spending since 1964:

CHART: Federal deficit spending, 1964-2015 (Source: St. Louis Federal Reserve)

(Those Leftists who want us to believe Thatcher rejected Keynesian policies, need to explain this chart. Can one of you Leftists, who are always whining about evil ‘neoliberalism’, please explain what looks like the opposite of what you said Thatcher stood for: almost four decades of relentless Keynesian stimulus?)

As you can see, even before Thatcher made her statement that “there is no alternative”, the United States was running almost continuous fiscal deficits amounting to almost continuous Keynesian stimulus. It is the oddest sort of rejection of Keynesian stimulus that finds its expression in an unbroken string of fiscal deficits. It turns out that neoliberalism is, in first place, massive Keynesian fiscal stimulus on steroids.

Thus, if TINA has any meaning at all, it means, “There is no alternative but to engage in Keynesian-style deficit spending forever no matter the consequences.”

Those consequences can be stated briefly: Running continuous deficit stimulus produces both inflation and trade deficits; what Thatcher called “suitcase money” in the press conference, or what we might today call capital flight. As prices rise domestically, industry is exported at an accelerated rate, leading to deindustrialization, globalization, etc.

To control the inflation generated by Keynesian deficit spending, the state must aggressively reduce the real wage of the working class below the value of labor power, while aggressively removing barriers to the import of commodities from industries that flee the country, which is the flip-side of capital flight.

Keynesian policies were never meant to help the working class; they are designed to buy time for capitalism from absolute overaccumulation. Thus, As Margaret Thatcher said so memorably in 1980, if you want to save capitalism, you must engage in continuous Keynesian deficit spending, the organizations of the working class must be broken, their wages crushed and their jobs exported to China.

“There is no alternative.”