Chapter 83 Section 1 Behind the scenes of economics

Economics is too important to just leave it to economists.To say that an economist's views reflect the noneconomic values ​​that make him a person is not to discount his expertise or integrity.John Maynard Keynes famously said: "Those men of action who think themselves wholly immune to any knowledge are usually the slaves of some late economist." But existing economists are equally slaves to outside influences.This was the case with Keynes himself - he was a member of the "Bloomsbury" cultural circle who, while rejecting Victorian virtues in their conduct, also subtly but surely abandoned The traditional laws and constraints of freedom, and thus "Keynesianism" has become synonymous with it.

So, my own views on economics also come from personal experience in the world in which I grew up.My "Bloomsbury" is Grantham - Methodism, grocery stores, Rotary clubs and all the serious and sober virtues cultivated and respected in that environment.Undoubtedly, there are as many reasons to believe in a particular economics as there are in politics or religion.But for me, the experience of living in the Roberts family was decisive. For the truth is that households and governments have far more in common than most politicians and economists would like to accept.While the results of flouting fundamental laws are somewhat different for nations and families, they are still disastrous.It is true that calamities are more serious for states, since they enable whole nations to suffer with them.

Not only did my upbringing and my early experience teach me what the government couldn't do, but I also deeply understood what I later thought of as "capitalism" or "free enterprise" with a sense of sympathy. For my generation (who were generally somewhat older), it was the so-called failure of capitalism in the Great Depression that convinced them that something better had to be found; Mu's bustling city center shows the opposite.For them, capitalism was alien and harsh; for me, it was intimate and creative.I saw that it was the satisfied customers that allowed my father to increase the number of people he hired.I know that it is international trade that brings tea, coffee, sugar and spices to the regulars in our shops.Other than that, I feel that doing business is as vibrant, humane, social, and social as I've seen at any fair anywhere.In fact, it's serious, but also funny.No course provides a better understanding of free market economics than in a corner store.Everything I learned at Grantham convinced me that the abstract critiques of capitalism I heard were not the same reality as I experienced.So I was vaccinated against the economic wisdom inherited from post-war Britain.

Influenced mainly by Keynes, but also by Socialism, the emphasis in those years was on the ability of governments to improve economic conditions through direct and frequent intervention.It was believed that the state, if used in an enlightened manner, could free the individual, family, or business enterprise from the constraints upon which they lived.In particular, when a family spends more than it earns and is ruining, (according to the new economics view) the nation is on the road to prosperity and full employment.Of course, things are never shown so starkly.For example, government deficits are meant to be spent in a "counter-cyclical" direction—that is, to compensate for the effects of depression—rather than unchecked.There was also rhetoric at the time about the need to avoid raising welfare levels so high that people would not want to go out to work, but behind all this there was almost universal agreement that government spending was morally and practically better than private spending. Spending is preferable because it has a higher, more reasonable stated goal.Before I read Milton Friedman or Alan Walters at all, all I knew was that these claims couldn't be true.Thrift is a virtue, profligacy is a vice.The world would have no meaning if political orders could suspend the laws of human conduct.Perhaps one of the biggest changes that occurred during my years as Opposition Leader and then Prime Minister was that the vast majority of policymakers (even economists) changed their minds and agreed with me.

It is now widely recognized that the consequence of increased government borrowing is to raise interest rates higher than would otherwise be the case.This is especially true if a larger deficit is expected to increase the money supply in the future, thereby fueling inflation.Thus, allowing budget deficits to rise will only impede rather than promote economic growth.The 1981 budget that I have discussed elsewhere is based on this understanding.At that time 364 economists issued statements attacking the strategy we had adopted, which they no doubt regarded as a direct challenge to the prevailing orthodoxy at the time.The challenge was a success. The figures for the summer of 1981 heralded a recovery, and other figures for the following quarter confirmed it. The economy was doing so well in 1983, and that, combined with the response to the victory in the Falkland Islands War, ensured that I had the best chance of winning the general election.

Just as with government borrowing, so does inflation.For decades, governments adjusted the economy based on the assumption that there was a "balancing effect" between inflation and unemployment - the so-called Phillips curve.It is now widely agreed that, in the long run, it is microeconomic changes affecting the structure of the economy—such as deregulation—rather than macroeconomic manipulation that determine the number of jobs that are created.Few now claim to believe that "a certain" inflation is economically desirable.In the past some governments thought that they were so smart and their wage negotiators were so stupid that the former could reduce the real pay of the latter through inflation.And now we know that, over the years, the opposite has been the case.Far from underestimating future inflation, wage negotiators often overestimate inflation and thus raise their demands.Thus, the so-called "money illusion" not only does not improve but weakens competitiveness.Worse, it is difficult to remove inflationary expectations from the system, which is why it takes many years to reap the benefits of low inflation.

One of the great political advantages I have over many of my contemporaries is that, first of all, I have to convince them theoretically of the virtues of monetarism, free trade, and deregulation, while technical arguments and insights have nothing to do with my basic instincts. It fits so well with early experience that I am easily persuaded—and my conviction helps me persuade others.