The Legacy of Reagan-Thatcher

    I was just reading a post by Krugman "Austerity Then and Now" which got me thinking. His point is that the austerity of the British after WWII was shared:

    "Postwar Britain had rationing; material consumption was depressed; but it had full employment. This is enormously important. All the evidence I’ve seen says that the psychological cost of unemployment is much greater than the loss of income. (And I know people who are comfortably fixed for money, but deeply depressed over their inability to find a job.) That’s why it’s so dumb to say, as some do, that things aren’t so bad in America right now because per capita consumption is still high by historical standards."

   "Second, postwar austerity in Britain was driven by real, obvious limits on resources. In particular, foreign exchange was in short supply. At a basic level, people knew why things were rationed — Britain had spent heavily on the war, it had to scrimp to pay its bills."

    "Today, by contrast, austerity is being imposed because men in suits say that it’s necessary to satisfy the invisible gods of the financial market. It’s understandable that the public is beginning to have its doubts, and not just because those invisible gods somehow demand sacrifices only from workers, never from the wealthy. For the fact is that those men in suits have no idea what they’re doing — a fact that was apparent to some of us early on, but it now becoming common knowledge."

    http://krugman.blogs.nytimes.com/2011/11/14/austerity-then-and-now/

     What stood out for me are the numbers on his chart which followed British unemployment from 1900-99. By far the era of the lowest British unemployment was from the late 40s to the late 70s no other period was close. During the Thatcher era we saw unemployment skyrocket. During the period of the dominance of the Labour party we consistenly saw unemployment beneath 5 percent, much of the time beneath 4 percent. Of course today we hear the "structural unemployment" can't allow for such low unemployment that it will give us inflation which is much worse than 10 percent unemployment presumably which is where unemployment got under Thatcher-Britain. No doubt to this there will be conservative economists who will try to explain this a way by arguing that other statistical measures are the better gauge.

    But listen again to Krugman:

    " it’s so dumb to say, as some do, that things aren’t so bad in America right now because per capita consumption is still high by historical standards." This is the same trick they play about income inequality-that we should look at per capita incomes, etc.