It has become fashionable of late to blame Thatcher and her successors economics for the current downturn and as such there has been a rush to herald the premature ‘death of Thatcherism’. Such sentiments are unmittigated nonsense and nothing more than an overreaction. It is true we are facing the worst economic downturn of recent memory. The banks are falling back under government control where they ought never to be, inverstors are ‘going wobbly’ and consumer confidence is at an all time low. It is tempting in such times of crisis to have a policy ‘revolution’ of sorts. To distance ourselves from pre established norms and conventions that led us down the percieved ‘road to ruin’. But the fact remains, in the words of Thatcher herself: there is no alternative.
The fact of the matter is ‘Thatcherism’ (for want of a better word) is built around one core concept: that the market should be free and that private ownership is preferrable to state control. The markets have been free… but ultimately not free enough. This current financial crisis should be understood not as a failure of free-market economic theory and Thatcherism but as its vindication. The U.S. government in particular has perverted the wisdom of the free market by encouraging banks to make loans that no rational actor would make. Furthermore the market ‘players’ took the risks they did because they held a reasonable expectation of a government bailout should things get hairy. They were right. Therefore the problem, in this view, is not that the markets were free but that they weren’t free enough and they were making rash and unsustainable judgements.
The truth is that it is not capitalism that has caused this economic downturn, but state intervention. Specifically, it was the decision by national central banks, above all the Fed, the Bank of Japan and the pesky European Central Bank, to hold interest rates too low for too long. That was a political decision, not a market one, and therein lies the root of the problems we are facing. The free market needs to be free… not free-ish. Unscrupulous politicians, particularly on the now gloating left, can always win applause by attacking globalisation and free market economics when the going gets tough. Yet the fact remains that every alternative to free trade has failed. Capitalism has winners and losers; but, overall, it has made the world happier, wealthier and more free than ever before.
Open, free markets in short are the solution not the problem and it is in that light that ‘Thatcherism’ will never cease to be relevant. The current temporary panic, and it is temporary, has caused wild swings in global stock markets. During a panic, logic is set aside and emotions rule. One of these emotions is fear, a strong and often irrational feeling which even more often causes bad judgment. It is undeniable that the free market and its actors are inherantly flawed however it is equally undeiable that free markets have produced record growth and provided its proponents with unprecedented, predominantly uninterrupted, prosperity for the better part of 3 decades. At the risk of stoking the fire I almost, and I emphasise almost, believe it would have been better to let some institutions collapse as a punishment for their woeful inadequacies and poor judgements that missed the fundamental message of the free market: let it be free.
“There is no alternative”