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Thatcher's Economic Legacy

Miners Strike 1984

British Police clash with protesting coal miners at the gates of Babbington coal mine near Nottingham, England on April 10, 1984. (AP)

Thatcher's radical transformation was necessary. But its work remains incomplete.

To understand the legacy of Margaret Thatcher, you need to understand Britain's "Winter of Discontent," in which striking public-sector workers nearly paralyzed the nation.  Actually, you have to go back a bit further, to the inflations of the 1970s.  Americans remember the "stagflation" of the 1970s as bad, but in Britain it was even worse—the inflation rate peaked in 1975 at over 25 percent. 

Governments on both sides of the pond decided that the solution to inflation was to simply declare, by fiat, that prices would not rise so much.  In America we got Nixon's wage and price controls.  In Britain, they got the government's 1978 vow to hold public-sector wage increases to 5 percent—at a time when inflation was running to double digits.

The public-sector workers, as you might imagine, did not like that.  And in Britain, the public-sector workers had immense power. Trash piled up in the streets. The truck drivers who ferried goods all over Britain went on strike—and the ones who didn't, like oil tanker drivers, began feeding their destinations to "flying pickets"—mobile groups of strikers who would go from location to location, blockading them so that workers couldn't get in and goods couldn't get out.  The BBC called them the "shock troops of industrial action" and that's an accurate picture; effectively mobilized, flying pickets can grind the wheels of industry to a halt.  Which is what they did in the winter of 1978-79.  

In Liverpool, the gravediggers went out, leaving bodies unburied for weeks.  By the end of January, half the hospitals in Britain were taking only emergency cases.  Full of righteous fury, the unions flexed every muscle, demonstrating all the tremendous power that they had amassed by law and custom in the years since the Second World War.  Unfortunately, they were pummeling the Labour Party, which had given them most of those powers.  And the public, which was also suffering through high inflation and anemic GDP growth, had had enough. They elected Margaret Thatcher, a Conservative grocer's daughter without roots in the working-class power structure of the labor movement, or the elite power structure of Britain's famously rigid class system.  She systematically went about dismantling the two main sources that gave labor the power to essentially shut down the United Kingdom: lenient strike laws and state ownership of key industrial sectors.  Arguably, by doing so she also ultimately helped undermine the class system, unleashing a somewhat more meritocratic entrepreneurial elite. 

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Why I'm Cutting Back on Red Meat

I've long been skeptical of the idea that hamburgers = death. But new data are slowly changing my mind.

The correlations between eating red meat and getting heart disease are suggestive. But the mechanism has always been a bit dim. Most of the research on saturated fat that was religiously followed in the 1990s has turned out to be less robust than we originally thought. That's led "paleo" diet followers and Atkins types to focus on eating almost nothing but meat. But the correlation still seems to be there.  

I've long suspected that it was a case of selection bias. The people most likely to follow any diet fad are upper-middle-class people who are likely to live longer than everyone else anyway. So if you tell them to get on a low-fat diet, ten years later, your long-term study of dietary patterns and mortality will show that lo and behold, low-fat diets improve mortality. If they all switch to eating red meat, then ten years later, red meat will look like some life-lengthening elixir. But over the last 20 years, the elites have been switching away from red meat, so red meat is apt to look deadly.  

McArdle: Cutting Back on Red Meat

The people most likely to follow any diet fad are upper-middle-class people who are likely to live longer than everyone else anyway... If they all switch to eating red meat, then ten years later, red meat will look like some life-lengthening elixir. (Juanmonino/Getty)

Well, today I got a big challenge to that theory. Scientists have isolated what looks like a plausible mechanism by which red meat damages your heart: the gut bacteria of frequent meat eaters process carnitine, a chemical found in red meat, into something called TMAO. And TMAO is associated with a higher risk of heart attacks.  

Big numbers, but underneath them, a lot of questions

The White House budget has leaked to Jackie Calmes of the New York Times and various other outlets.  Here are the details, as far as I can make out:

1.  It will incorporate the deal that Obama offered John Boehner during the fiscal cliff negotiations.  $600 billion in new revenue, mostly from capping deductions for rich people at 28%.  $400 billion out of health care spending, mostly from provider payment cuts.

2.  The big news is that administration continues embracing "chained CPI", which would lower the inflation rate that is used to calculate cost-of-living adjustments for Social Security benefits.  This has been very unpopular with the party's left wing

3.  The president is continuing to emphasize pre-K education, which looks to be the signature progressive project of his second term.  He wants more money for states to fund pre-K, paid for by higher taxes on tobacco.  

Puppynomics

Friday Puppy Video

Never fear, Fitzgerald is here!

I'll be out of pocket for most of the rest of the day.  So console yourself over the lackluster jobs report with another hilarious puppy video:


Unemployment Nation

March Jobs Report: Not Good

Five years in to the Great Recession, the economy still isn't putting people back to work

Payroll employment rose by 88,000 jobs in March.  The best you can say about this is at least it's not falling.  The conventional wisdom is that the economy needs to add around 125,000 jobs just to keep even with population growth, so we're about a third short.  Headline unemployment stood unchanged at 7.6%, but that's because nearly half a million people left the labor force in March, and therefore were not counted as unemployed.  As my former colleague Dan Indiviglio noted on Twitter, a half a million people leaving the labor force in the spring doesn't sound like retirement; it sounds like discouragement.  People are finding it too hard to secure a job, so they're giving up.  

The biggest weakness in the private sector was retail, which lost 24,000 jobs.  This comes on top of reports that US retail sales were weak in March--and Walmart's February freakout over disappearing customers.  Since retail can be the canary in the coal mine for the broader economy, there's real reason to be anxious.  

That said, it's just one month.  It's been a cold spring, which could be hurting retail sales, especially at home and garden centers, which lost a bunch of jobs.  So don't start stocking up on canned goods and ammo just yet.  But keep a close eye on the April figures.

Buying high. Selling low. Stop trying to beat the market and start focusing on saving enough that you don't have to.

Brett Arends has a spot-on column about the Mom and Pop investor, and how they keep screwing up their investments:

The problem with Villa and White isn’t that they are unusual but that they are absolutely the typical American investor. Both of them are doctors, meaning they are presumably intelligent and educated. And yet they insist on investing like absolute fools.

First, their minds have been playing tricks on them all along. The crash of 2008 did not wipe out half their savings, unless they invested all their money right at the peak and sold right at the bottom. The reality is that it wiped out a lot of illusory gains and replaced them with a lot of illusory losses. Stock prices were wrong in 2007 because they were too high, and they were wrong in late 2008 and early 2009 because they were too low.

Second, as they now know, they sold out somewhere near the lows. They were not alone. According to the Investment Company Institute, the trade body of the mutual fund industry, U.S. investors flooded the market with stocks in the fall of 2008 and the winter of 2009. From September, 2008 through March, 2009, ordinary U.S. investors dumped $114 billion worth of stock funds. They sold at absolutely the worst time.

Annals of the Financial Crisis

Japan's Bold, Limited New Economic Plan

Japan's central banker is pushing for higher inflation. How much good will it do?

Japan has announced a bold new plan to halt deflation.  The idea is to effectively double the amount of money in circulation, getting the country back to 2% inflation as soon as possible.  

I join most economists in thinking that deflation is bad, and it will be good if Japan can stop it.  Deflation causes money hoarding--if that dollar you have now will be worth more later, it only makes sense to spend it later.  Deflation also means that the economy adjusts to real shocks in the most disruptive way possible.  

Say a company's customer base is shrinking, or getting more price conscious.  They need to shrink their real wage bill by 3%.  If inflation is running at 2% a year, they can just freeze wages and hold on for a little while.  But if inflation is negative--i.e., if they have deflation--then they have to do something more drastic.   Either they have to give employees a pay cut, which is really hard to do, or they have to fire people.  

So too with debt.  Deflation is good for creditors.  But it's terrible for debtors.  Say that business is slow and your mortgage is really starting to pinch.  If inflation is 2-3%, you just need to hold on a bit; every year, the real value of your mortgage will shrink, making it easier to pay.  If inflation is negative, you'll probably have to lower your prices.  But the value of your mortgage doesn't adjust in the same way, so every year, it gets harder and harder to pay.  Eventually, you may default.  Both you and the creditor would have been better off with moderate inflation than an outright breach.  

Newsonomics

Can Consultants Help Protect a Monopoly?

The news business is about to go to paywalls. Will consultants help them collude on the price?

The era of free news is fast drawing to an end.  Newspapers have conceded that digital ad revenues are never going to replace what they lost in print, and so they're going to try to get the money out of readers instead.  Most of the major British and American newspapers are either throwing up paywalls, or considering it.  I imagine that magazines will not be all that far behind.  Information may want to be free, but its creators need to get a paycheck.  

Felix Salmon notes that consultancies will end up driving how these paywalls are priced: by working for multiple competitors, they can amass information on what works, and what doesn't--and then sell that information.  The market will probably converge on one, or a couple of firms, the better to share that information.  James Joyner wonders how this can be legal:

But my immediate reaction was: Why is this legal?

One longstanding critique of newspaper paywalls has been that few of us are going to fork over money for ordinary news—as opposed to niche information valuable to our business—when there are so many quality sources outside of paywalls. So, the only way for, say, the New York Times to successfully implement a paywall was for all its peer competitors to also go behind a paywall at the same time. But, given that paywalls had a poor track record of success, that erecting them is somewhat expensive, and that putting them up cut down on pageviews and thus advertising revenue, a Catch-22 existed.

Sushinomics

The Great Sushi Scam

That fish you're eating may not be what you think it is

Smithsonian Magazine reports that mislabeling fish is rampant, particularly in sushi restaurants.  Most of that white tuna you're eating is something else.  So is the red snapper.  And to varying degrees, much of the rest of the fish you're eating is probably some other fish entirely.  

The study compiled data from more than 1,200 seafood samples from 674 retailers in 21 states between 2010 to 2012. DNA testing showed that 33 percent of those samples were mislabeled or posing as fish that they were not. Samples claimed to be tuna and snapper had the highest fail rates, at 59 percent and 87 percent, respectively. Only seven of 120 samples of “red snapper” purchased nationwide actually proved to be red snapper. The rest belonged to any of six different misrepresented species.

Two immediate thoughts on this.  The first is that this is the sort of thing that even libertarians think that the government is supposed to prevent.  Someone in that food supply chain knows that the fish they're selling as tuna is in fact something else entirely.  How has this deception become so pervasive?  

The second--which is possibly an explanation for the first--is that it's hard to know how much this matters.  Before the FDA started cracking down, grocers might stretch your coffee with other kinds of beans, your flour with sawdust.  This was not only deceptive, but also dangerous; for example, eating raw, or briefly boiled, beans is not very good for your digestion.  

Gun Control

Congresswoman Doesn't Know How Guns Work

Speaking out for gun control, she reveals that she doesn't know magazines can be reloaded

A couple of days ago, I noted that Kathleen Sebelius doesn't seem to know how insurance works.  Now Colorado's senior Democratic representative, who wants to ban extended magazines, appears to reveal that she doesn't know how the magazines that she wants to ban actually work:

Asked how a ban on magazines holding more than 15 rounds would be effective in reducing gun violence, DeGette said:

“I will tell you these are ammunition, they’re bullets, so the people who have those now they’re going to shoot them, so if you ban them in the future, the number of these high capacity magazines is going to decrease dramatically over time because the bullets will have been shot and there won’t be any more available.”

What she didn’t appear to understand is that a magazine can be reloaded with more bullets. According to the Shooter’s Log, only early on were magazines for AR-15s designed to be disposable, but the military changed that and now magazines are used several times. In handguns, a magazine is designed to be reused hundreds of times.

Countdown to Obamacare

Obamacare Won't Be Doing Much for Small Business Next Year

It's easier to describe a system than to implement it.

Where was the contingency plan?

That's what Joe Klein asks upon learning that Obamacare's health care exchanges, a sort of government-run insurance supermarket, are going to delay implementation of most of functionality that was supposed to be available for small businesses.  Instead of a choice of offerings, in many areas, they'll basically have one.  This is worse, not better, than the current markets.

Sure, the administration was surprised when so many states declined to operate their own exchanges, forcing the federal government to step in.  But the administration doesn't seem to have prepared for that possibility, even though it was an obvious threat by last year.  Instead, they held open the deadline for states to declare, making themselves even later.  

This is the danger of a Rube Goldberg Policy Machine: a very large, complex piece of legislation with lots of parts that all have to work together perfectly in order to make the whole thing run.  If you've misunderstood the mechanics--if, for example, you thought that premiums were going to decrease, rather than increase, under the new law--then there's a huge danger that this massive apparatus will suffer an irreparable breakdown.  The risk increases if you passed the law over the vociferous objections of a minority party whose cooperation you now need to fix it, especially if you said things like "elections have consequences".

Changing the name will not change how people feel.

There's been a recent movement afoot to change the way we refer to illegal immigrants.  Undocumented immigrant seems to be the preferred standard, but the suggested replacements vary.  The AP has now responded by banning the phrase from its stylebook.  Kevin Drum is annoyed that they haven't suggested an acceptable substitute:

AP apparently now feels that there's no acceptable way to refer to people who are in the country illegally. Neither "undocumented immigrant" nor "unauthorized immigrant," is acceptable, and neither is anything else. Labels are flatly not allowed, despite the fact that we label people all the time. Kevin Drum is a blogger. Barack Obama is a politician. Etc.

This leaves us with constructions like "John Doe is a person who immigrated to the United States illegally." Or: "A bill pending in Congress would bar immigrants who are in the country illegally from receiving Medicaid." Clunkiness aside, I guess we can all get used to that, but I'm not sure how it especially serves the cause of accuracy.

I think the bigger problem is that this isn't going to work. I favor changing the rules to favor more (legal) immigration.  But I am under no illusion that I can make the case by changing the words that we use to talk about it.  Look at the evolution of the way that we refer to people with physical or mental disabilities.  "Retarded" was originally a nicer alternative to "mental defective".  Then people started using it as an insult, so we invented a raft of new euphemisms, like "special needs".  So now we get jokes about "sped kids" and being "special".  Unless the underlying social attitudes change, the new word eventually takes on all the baggage of the old one.  

Here we go again

This morning, the Washington Post reports that the administration is pushing for banks to loosen their lending standards in order to make more home loans to buyers with poorer credit and lower incomes.  If you're anything like me, you probably said to yourself, "Oh my stars and garters!  What sort of daffy wisenheimer came up with this crackpot scheme?"  

Seven years on, we're still marinating in the hangover of our last attempt to make the boon of homeownership available to people who can't really afford a home.  Why on earth would we do this again?

I'm not sure it's quite as crazy as it sounds.  The administration seems to be making the basically fair argument that banks are putting all their energy into refinancings, made attractive by the low-low rates currently on offer at the Federal Reserve.  It's nearly impossible for someone with a credit score below 680 to get a mortgage.  A 680 credit score is not "deadbeat" territory; it's someone who's had trouble in the last few years, but is now current on everything.  

On the other hand, it's not exactly clear how far the administration wants to go with this.  "There’s always a tension that you have to take seriously between providing clarity and rules of the road and not giving any opportunity to restart the kind of irresponsible lending that we saw in the mid-2000s" says an anonymous official, which is entirely sensible, but rather vague.  How small a downpayment would they like buyers to qualify with?  How low a credit score?  That stuff matters, because the banks no longer have the capability to do the kind of detailed manual underwriting that they used to do in years past.  They are going to go by whatever numbers the administration gives them.  

Greenfail

Solyndra 2.0

Fisker Automotive is teetering. How many others in the government loan program that funded Solyndra will eventually fall?

It's been about 18 months since Solyndra announced that it would be filing for bankruptcy, taking a $535 million loan guarantee from the Department of Energy with it into the grave.  At the time, critics (including me) argued that this might not have been a very wise use of taxpayer funds.  The administration's defenders rejoindered that the loan guarantee program, which was aimed at stimulating investments in Green Technology, was in fact a roaring success.  Investing in such an early stage, innovative sector put the administration in the place of a Venture Captial firm: some of the loans would go bad, of course, but the pathbreaking performance of the other firms in the portfolio would generate huge overall dividends.  

When we critics asked why these companies needed so much funding, we were told it was needed to help them cross the "Valley of Death" between early stage funding and a big, lucrative IPO, where there was allegedly a big shortage of available funding.  There was a hole in the venture capital market, said the program's boosters, and the government was needed to fill it.

Overall, three firms have already gone bankrupt.  Now we can probably add a fourth: Fisker Automotive, an electric car manufacturer, seems to be teetering on the edge of bankruptcy, which means that we are probably going to lose a big chunk of the nearly $200 million worth of loans that the US government guaranteed for the company.  (The guarantee was originally much larger, but the administration pulled the plug when Fisker continually failed to meet its targets.)  This seems to be a good time to check in: how's our money doing.  

Before we go any further, though, we should get clear on one thing: these loans were always going to have a low default rate, because the majority of the money was given to large companies with big balance sheets.  Ford and Nissan alone account for around 20% of the total loan programs.  These loans are very unlikely to default, but for precisely that reason, it's hard to see why government assistance was needed . . . except to encourage companies to invest in a project that has a low likelihood of becoming a big success.

Susan Patton may have said it inelegantly, but she’s basically right: Princeton students should think about finding a mate.

I would like to start this post by thanking my parents for not writing incredibly embarrassing letters to the editor of The Daily Pennsylvanian when I was in college. No matter how urgent she felt her message to be, it would only have been decent for Susan Patton to have waited for her son to graduate before offering the student newspaper her opinion that Princeton girls should get engaged while they’re still in school. I hope that Princeton has top-notch counseling facilities, as well as a friendly local bar where the son can drown his sorrows. 

That said, while I wouldn’t have said it exactly the way she chose, I think Susan Patton is basically right: people should be looking to get married as early as possible.

I say this as someone who married late, and since I wouldn't want to have married anyone except my husband, I'm glad I waited. But as a general rule, you should err on the side of marrying early. By which I mean not that you should marry whoever happens to be around when you turn 22, but that you should be willing to recognize, at the age of 22, that you've found someone you want to marry. Right now, most Princeton students don't think that way. They think there's something weird about committing at 22. And if they try to commit, their friends and parents will warn them off.  

This seems like a mistake. The age at which the right person comes along depends on luck, not some kind of calendar. You can’t plan for it to happen between 26 and 28, so that you can get married by 30 and have your first kid by 32. If you don’t meet them right then, all that pressure to marry whoever happens to be around, which you so neatly avoided at 22, pops up again--around 30 for women, around 35 for men, judging from my experience. At 22, you're less likely to have to settle: the dating pool is larger, and it’s easier to say, “Well, I’ll wait a few years until the right one comes along.”  

About the Author

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Megan McArdle

Megan McArdle is a special correspondent for Newsweek and The Daily Beast covering business, economics, and public policy. A former senior editor at The Atlantic and writer for The Economist, Megan has a diverse work history including three small startups and a disaster recovery firm at Ground Zero.

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