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Home Publications Blogs Beat the Press Fareed Zakaria Fails to Appreciate the Fruits of Thatcherism

Fareed Zakaria Fails to Appreciate the Fruits of Thatcherism

Thursday, 11 April 2013 04:03

Fareed Zakaria failed to recognize the true fruits of Thatcherism in his column today. After telling readers that Thatcherism was the right remedy for the problems of the 1970s such as oil shocks, slow productivity growth and rising wages, he says that it is not the answer for economy now:

"Today, American and European workers struggle to keep up their wages as technology and globalization push them down. Western economies face global competition, with other countries building impressive infrastructure and expanding education and worker training. They face a two-track economy where capital does well but labor does not, where college graduates thrive but those without strong skills fall behind and where inequality is rising not just in outcomes but also in opportunities."

Actually, the problems that Zakaria identifies are largely the result of Thatcherism. A main reason that workers have to struggle to keep their wages up is that central banks have deliberately raised unemployment in order to keep inflation low. This weakens the bargaining power of workers, especially those in the bottom half of the wage distribution.

The high unemployment of recent years can be attributed to a policy of financial regulation that allowed for banks to grow large with the implicit subsidy of a government granted too big to fail guarantee. It also required central banks to conduct monetary and regulatory policy without regard to asset bubbles.

Thatcher and her kindred spirits in the United States and elsewhere worked to weaken labor unions. This has also reduced the ability of workers to secure their share of gains from productivity growth.

The split between winners and losers in the current economy does not fit Zakaria's description. The median wage for college graduates has been virtually flat since the 1990s. This group includes many people who have very high skills.

The comment about globalization is bizarre. The fact that other countries have become wealthier should help the rich countries, not hurt them. It only poses a problem in a context of bad macroeconomic policy, like having an over-valued currency. It also can be a problem with selective protectionism of the sort used in the United States. Trade policy has deliberately put less-educated workers in direct competition with low-paid workers in the developing world. By contrast, highly educated professionals like doctors and lawyers, are largely protected from such competition.

It is remarkable that Zakaria somehow fails to recognize the extent to which the factors that he identifies as problems were the direct result of Thatcherism. In many cases, such as the weakening of workers bargaining power, this was an explicitly stated goal of many of her supporters.

Comments (3)Add Comment
written by skeptonomist, April 11, 2013 9:17
I think Dean is on the right track when he says that "central banks have deliberately raised unemployment in order to keep inflation low" but was this really a consequence of Thatcher-Reaganism?. The Fed and other central banks started raising rates in the 60's and their policy rates reached extremely high levels before either Thatcher (1979) or Reagan (1981) took power. As I have mentioned before, the 70's was when real wages crashed. Central banks' action failed to suppress inflation, by the way.

The consensus among economists of various kinds, including Keynesians and monetarists, was that monetary policy could control both inflation and employment - this was not something invented by Goldwater, Reagan or Thatcher. The fact that both inflation and unemployment reached very high levels during the time when central banks were most active does not seem to have shaken the faith of many economists in monetary policy and the Maestros are still expected to solve all problems with magical manipulations - sometimes just by announcing what they will not do in the future.
written by PeonInChief, April 11, 2013 10:26
It always amazes me that the neolibs don't take responsibility for their policies and their outcomes. If you can remember back to the 1980s, you know that the general mean-ing of the culture and politics was what they wanted. Instead of taking responsibility for the consequences of their choices, they adopt a "we didn't mean this" pose.
rising wages?
written by edward ericson jr, April 11, 2013 3:02
That Zakaria thinks rising wages were a "problem" tells everyone all they'll ever need to know about him.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.