A new orthodoxy on the causes of the economic downturn is emerging, which could be called the “1980s narrative”. This blames the current crisis on excesses that emerged during the free market era of Ronald Reagan in America and Margaret Thatcher in Britain. Supporters of this view argue that the financial liberalisation of the 1980s paved the way for the problems of today.
There are several reasons to be wary of this viewpoint:
* Many proponents of the 1980s narrative were supporters of reforms during the Reagan-Thatcher era. For example, today’s Wall Street Journal Europe quotes Nigel Lawson and Cecil Parkinson, two senior Thatcher stalwarts, as saying banks were allowed to grow too big at that time. Of course people are entitled to change their minds but it is also the case that if they were wrong then they could be wrong now.
* It does not make sense to put most of the blame for today’s problems on developments of almost two decades ago. It is necessary to look for more contemporary explanations.
* Although the 1980s narrative is presented as a radical, almost anti-capitalist, stance, it is in fact deeply conservative. The reason it is hostile to free marketeers is that it sees them as having let popular consumption off the leash. Free marketeers are accused of violating the sanctity of the Protestant ethic. Popular consumption is viewed with disdain.
* It locates today’s economic problems in the financial sphere rather than in the weaknesses of the productive economy.