Thatcher Fallacy (1)

    

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“Thatcherism made a small number of Yuppies filthy rich”

This is often used by the Left as an example of how Thatcherism favoured the rich over the poor. This implication however is a fallacy.  

Yuppies can make a huge amount of money, but then they are hugely active economic agents who play the stock market on a daily basis. Some do it for themselves, some do it on behalf of others and take a percentage of the profit in exchange for their market knowledge. However, it should be remembered (though it often isn’t) that Yuppies can also lose a huge amount of money. Yuppies who got used to the high-life during the Big Bang of the 1980s crashed to Earth in the 1987 stock market crash.

This activity, however, is not a superfluous sector of the economy. On the contrary, it performs an important function. Stock purchases allow companies to raise large sums of capital quickly. Expanding companies often ‘float’ on the stock market to fund their growth, or companies encountering financial difficulties sell stock to raise funds. This can both create and stabilise employment far down the economy. Then, when the companies grow or recover the stocks can be sold for a higher price. The Yuppie makes a tidy profit for himself but also has extra money to invest in new companies that require capital.

The wealth created by this virtuous cycle percolates down the economy, creating employment and contributing heavily to government revenue which can be used to fund education, healthcare and other public services. The Thatcher government’s deregulation of the stock exchange boosted this multiplier effect and was in the interests of the whole economy, rich and poor alike.  

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13 thoughts on “Thatcher Fallacy (1)

  1. Unsuprisingly… I like this. However I do remember a certain someone saying “We need to tone down the Thatcher posts”. Perhaps said someone was miffed because they wanted to write the posts themselves :P

  2. Pingback: Fallacy and the exploration of Thatcher’s legacy « Birmingham University Labour Students

  3. I hope this will be one of your easier Thatcherite posts to rebut, Mr Cowdrill. The crux of your hugely theoretical argument appears to be that all of these efficient acts of the market are providing economic benefits to the poor:

    “The wealth created by this virtuous cycle percolates down the economy, creating employment and contributing heavily to government revenue which can be used to fund education, healthcare and other public services.”

    Only your theoretical argument seems to fall flat on its face when it comes to facts. You mention the following factors; please give me your best critique on how these factors faired under Thatcher:

    Employment –
    Education spending –
    Healthcare –
    “Other” public services –

    This is the fundamental problem for Thatcherism and Thatcherites – it looks lovely in a textbook (and I can even accept that in terms of clinical logic alone, capitalism looks like a more sensible idea than socialism), but unless you were one of the few to be able to afford to live and buy your own services, it’s simply proven not to work. Remember you were asking people in the 1980s to pay for services which, under today’s Labour government, would have been provided free of charge – and very often you were asking those people to pay for those services when the economy was in such a state that they were unable to find work.

    Your post does make me more receptive to the argument for nationalisation, however. Since the “percolation” you referred to was so ineffective, why not just re-nationalise some of the industries and not have to worry about anything having to percolate?

    :)

  4. This is a straw-man criticism Daniel. How about justifying the diastrous slump she and Geoffrey Howe caused in 1980-81 by pursuing an money-supply policy she then abandoned?

  5. Sorry, but I can’t let your comment go Richard.

    Do you *remember* what this country was like in the 1970’s? arbitrary strikes, rampant inflation, shortages of candles, toliet paper, bread, candles, power cuts a regular occurrence, the ‘winter of discontent’ with rubbish uncollected and bodies piling up in morgues? Was what Thatcher did brutal? Yes, some of it was, and the way some people behaved to those who lost their jobs was quite shameful. But it was absolutely necessary – this country was going down the tubes.

    How is wealth *really* created? By increased productivity, and as productivity is essentially a product of the human mind, it is unbounded.

    The whole ‘trickle-down’ argument is a valid one, but it’s not the one I would use as it implies that wealth-creation is a zero-sum game, and it most definitely not.

    When you say “it is proven not to work”, what are you referring to? that capitalism does not work? The evidence from China and India shows that it most definitely does work – or rather a free market in goods and ideas does work, because capitalism is the private ownership side of the equation. This is essential for liberty and freedom, as it means you can be a slave to no man. Please see: ‘The Philosophy of Liberty’ at http://www.youtube.com/watch?v=8z1buym2xUM for a short (8 minute flash) introduction to liberty and freedom as derived from first principles. It is ideologically free as long as you believe in freedom and liberty.

    Your statement that “… you were asking people in the 1980s to pay for services which, under today’s Labour government, would have been provided free of charge…” does not hold water, as there is no such thing as something provided ‘free of charge’ – the cost for that service had to be found from somewhere, and as it is most likely to come from taxation, that means someone else had to pay for it. That someone may not have wanted that service, perhaps preferring to spend that money on something else; contact lenses, a holiday, education for their kids, but now they can’t because someone else decided they knew how to spend that persons money better than they did.

    Finally, please let us not go back to Nationalisation – it simply does not work, as evidenced by the ‘target chasing’ in the NHS (the list is as long as your arm, but that one will do), and as we’ve seen with Northern Rock where 100 billion pounds has been pumped into a failing institution to save 6,000 jobs (and it is rumoured, some marginal labour seats) that it is far too susceptible to political control.

    Thanks.

  6. John, my arguement is theoretical. However, it also describes the role of the stock market on a practical level. Money is raised for companies that are either wanting to expand or who are going through financial difficulties. This ultimately secures employment. The tax derived from this wealth creation also goes to the exchequer and contributes to public services.

    In addition anyone at all who owns shares, such as pension holders and educational institutions like Birmingham University, benefit from a dynamic stock market.

  7. Tony,

    Being born in the 80s, I can only read about what the country was like in the 70s – which was a decade where power was shared between the Tories and Labour.

    I really don’t believe treating workers in a shameful manner was necessary, but I take the point you were making – it’s not right that trades union leaders can bring a country with a democratically-elected government to its knees.

    I agree that wealth is created by increased productivity – but I also believe that productivity comes with confidence in one’s job, environment, etc. I think a very good example of this is in the sort of attitude the Thatcher era left behind in so many working class areas (whether they be former mining areas in the North, Scotland and Wales or manufacturing areas in the Midlands) – desparation didn’t result in fiercer competition for jobs and increased productivity – desparation in the form of a parent’s inability to feed their children in the face of *no* job supply leads to people turning to state benefits to just live. This turned many people from proud workers in the 70s to the benefit scroungers and incapacity benefit claimants of the 80s, 90s, 00s+ that we see today. This, in my mind, is Thatcher’s longest living legacy – and I really can see it every time I look out of the window.

    This comment is dragging on, so I’ll wrap up and respond later as people attempt to tear me apart. Yes, a degree of capitalism is essential, because people need some tangible personal benefit for increasing their productivity – but this really must be squared with making a contribution to society (assuming “society” exists!) as well. Most people who contribute to this blog would rather take £1000 of their money and build an electric fence around their house than lose the £1000 in tax, and be happy in the knowledge that they’ve made a contribution to society that means their community has improved enough for them to not need an electric fence in the first place.

    Which side of the fence do you lot stand?

  8. John,

    Sorry, should have been more observant re: the “remember the 70’s” thoughts…my point was not so much that the unions were running the place, rather that the country was ripe for major change – don’t forget that there were strict rules as to who could do what in the stock exchange for example (jobbers, brokers etc.) – all blown away by the ‘Big Bang’ in the city. I don’t need to point out that a lot of east-end barrer boys made a shedload of money (created a lot of wealth) in the 80’s and that today, it’s not so much who you know, but what you know. Certainly the old boys network still exists, but noone is going to trust Tarquin with £200 million simply because he went to Eton…are they?

    Productivity can come in many forms – confidence in one’s job is a very good example. But essentially productivity (ie wealth *creation* – *not* a zero-sum game) comes from the capacity of the human mind to imagine new things and bring them into creation. In that respect, the capacity for productivity (and therefore wealth creation) is essentially infinite.

    As to your final point, regarding capitalism – every time someone creates something, through the power of productivity (ie via the creative force of their own mind) they *are* contributing something to society – a better light bulb, a new play, a computer program, a new blog, a better hay fever tablet, a holiday excursion – these are all goods and services that *everyone* can benefit from.

    What we should be doing is figuring out how to help more people create goods and services that other people want, and in that way everyone benefits. This talk of fences is a red herring.

    Cheers.

  9. I do worry that some in my party make it appear as though we are against wealth when we should be against poverty.

  10. Jack,

    What is poverty? Poverty is the natural human state – it is the absence of wealth (and by wealth, I mean the ability to change your surroundings). If you don’t do anything, poverty will result, and in the final analysis that means hunting to survive (6+ billion people doing that? – I don’t think so) or (if you’re lucky), subsistence farming, where you’re always one poor harvest from starvation.

    However, being ‘against’ poverty is like being against ‘cold’, or the absence of energy. You need to ‘put something in’ to get rid of poverty. The thing you put in is wealth, and the truly amazing thing about wealth is that it is not zero-sum, and it is infinitely extensible, because at the end of the day it comes not from any physical resource, but from the human mind.

    I think I can summarize it this way:

    The capacity to create wealth is infinite, which is good because it destroys poverty, whilst the wealth so created does not mean that anyone else lost out, rather *everyone* benefits from this creation.

    Cheers,

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