There is No Alternative (19 page)

Margaret Thatcher was not an economist. Her views about economics were not original. Her critics often note this with derision. “Thatcherism,” sniffs the economist Frank Hahn, “as represented by Mrs. Thatcher herself, is intellectually without interest. It consists of homilies on the virtues of work and ambition and on providing the carrot and stick to elicit these virtues.”
⁸⁷
Hahn appears to be suggesting that there is something wrong with this, but I am not sure why. It is hardly a politician's job to be intellectually interesting. It makes no more sense to criticize Thatcher because her ideas were unoriginal than it does to criticize Adam Smith because he was not a good politician.

Thatcher herself was exceedingly proud of the unoriginality of her economic opinions. She held it to be a measure of their value. She did not invent Thatcherism, she claimed; she merely rediscovered it, in much the way doctors have recently rediscovered the medical value of leeches—both are tried-and-true, old-fashioned cures only latterly obscured by high-tech faddism, and if both cures are rather unpleasant, well, when a patient is dying it is no time to be squeamish. (This is my analogy, not hers, although she did once liken herself to a tough nurse who refused to coddle her patients lest their muscles atrophy.)

“When people spoke about the ‘Thatcher experiment,'” she remarked after her resignation, “they missed one very important point. I am a trained research chemist. I know what experiments are. And I never confused my country with a bacterial culture. The proof that the theory worked was, I knew, already to be found in the economic progress of the West.”
⁸⁸

As these remarks suggest, there is a theory behind Thatcherism
.
Nigel Lawson, Thatcher's chancellor of the exchequer from 1983 to 1989, correctly insists that Thatcherism is not “whatever Margaret
Thatcher herself at any time did or said.”
⁸⁹
Rather, as he puts it, Thatcherism is “a mixture of free markets, financial discipline, firm control over public expenditure, tax cuts, nationalism, ‘Victorian values' (of the Samuel Smiles self-help variety),
⁹⁰
privatization and a dash of populism.”
⁹¹
He is right, but his phrasing might suggest that these ingredients are independent or equally weighted. In fact, all but nationalism and populism, which are not economic policies, derive from the first on the list: free markets.

Free-market economics and Thatcherism are often held to be synonymous. This is nearly true, but there is an important additional dimension to Thatcherism—a faith in the morally redemptive power of the free market that goes well beyond standard economic claims. Generally, free-market economists favor free markets for two reasons: because they believe free markets are efficient, and because they are, by definition, free. (To make the latter point non-trivial, add the suppressed premise:
freedom is good.
) Thatcher believed both these assertions to be true. But equally importantly, she believed that free markets not only served but
created
robust, self-sufficient, and moral citizens, and vice versa.
⁹²
“We must not focus our attention exclusively on the material,” she declared in 1977,

Free markets, she emphasized again and again, forced individuals to take responsibility for the outcomes of their choices. “People must be free to choose what they consume, in goods and services,” she told the Greater London Young Conservatives:

It is critical fully to appreciate that Thatcher's enthusiasm for free markets can't be reduced to an enthusiasm for economic efficiency—this is a charge often made, but it simply isn't so. A
moral
society, not an efficient one, was her ultimate goal.

Almost everyone—no, everyone—has heard the phrase “free market.” But try asking the next five people you meet to explain what a free market is and why it might be desirable. My own admittedly casual research suggests that few people have given the matter
much thought. This is surprising, because more than any other concept in economics, and perhaps more than any other idea in history, the concept of the free market has had a direct—a vital—influence on the lives of billions.

The argument for free markets involves a beautiful, fascinating, counterintuitive theory. It is one of the great achievements in human thought. It is also, basically, simple. A free market is one in which the prices of goods and services are determined by individual sellers and buyers, not by the government. It differs from a planned or command economy in that no centralized authority makes decisions about resource allocation.

The central claim of the theory is this: Free markets allocate resources efficiently because the decisions men and women make about what to buy, what to sell, and how much to pay or charge for those goods convey critical information about what people really want and how much they really want it—as opposed to what the government believes they want, or worse still, what the government believes they
should
want. I use the word “efficient” because economists are partial to it, but I am aware that the word carries cold and technocratic overtones. You may substitute “an allocation of resources that makes people happier.” That is what we really mean. Or more bluntly, you can put it this way: “an allocation of resources such that fewer people starve to death.”
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A free market is more efficient than a controlled one because in a free market, prices convey critical economic information—information about the relative scarcity of goods. This in turn
guides the myriad decisions of individual actors in the economy about what to produce and what to consume. This point tends to be abstruse in the abstract but intuitively obvious in the specific. Why, for example, are Hawaiian pineapples cheaper than Alaskan pineapples? They are cheaper because they cost less to grow. They cost less to grow because light, in Hawaii, is abundant. Why is Hawaiian seal blubber more expensive than Alaskan seal blubber? It is more expensive because seals, in Hawaii, are scarce.

Suppose that the Alaskan pineapple farmer—who grows his pineapples under halide lamps and thus pays a high monthly electricity bill—is finding it tough to stay afloat in a market flooded by cheap Hawaiian pineapples. Rather than selling the hothouse and buying a seal-spear, he persuades the federal government to give him farm subsidies on the grounds that without them, he will go broke. This is hardly a far-fetched example; the federal government dishes out billions of dollars every year in farm subsidies on precisely these grounds. The Alaskan farmer can now charge less for his pineapples than they cost to produce. At the supermarket, however, the price of Alaskan pineapples and the price of Hawaiian pineapples will now be similar. Perhaps the Alaskan farmer will even be able to undercut the Hawaiian one.
Ceteris paribus
, the consumer will pick the cheaper pineapple.

This state of affairs disguises an important truth: The Alaskan pineapples do not really cost what the Hawaiian ones do. The government subsidy comes from money taken from taxpayers. The consumer is not, in fact, paying the same price for Alaskan pineapples as he is for Hawaiian ones—quite the contrary. He is paying more for them, but doing so indirectly. Since the true cost of Alaskan pineapples has been obscured from him, he is apt to buy more of them than he would if he knew how much they really cost. But he has not been offered the information he needs, in the form of a price, to express his preference, in the form of a purchase.

I, for one, would not want Alaskan pineapples enough to pay their real price. I would rather keep the money that has been taken
from me, buy a Hawaiian pineapple, and spend the difference on the latest issue of
Public Choice
. But it is clearly absurd to imagine that any government functionary, however well-meaning and prescient, could predict that this is how I would prefer to spend my money. It is even more absurd to imagine that the government could predict the preferences of every actor in a large economy with this degree of precision. In a free market, the government does not have to predict anything of the kind—the price mechanism does the work for them.

Consider another hypothetical scenario. Imagine the government has decided that the price of pineapples is simply too high. It decrees that all pineapples must now be sold for a dollar each. This will ensure that everyone, even the poor, has equal access to pineapples.
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Thanks to the Fair and Compassionate Pineapple Program, pineapples of every provenance will appear, at the supermarket, to be cheap. If they are cheap enough, I will buy more of them. I may well buy every last pineapple in the store: I have been known to do this when something I like is on sale.

There is obviously a problem with this. If I buy all the pineapples, there will be none left over for anyone else. And if the government has capped the price of pineapples, no one will voluntarily start growing more of them, because
in reality
it costs two dollars to grow a Hawaiian pineapple and twenty to grow an Alaskan one. Pineapple farmers are not charity workers, and pineapple farming has now become not only unprofitable, but a form of personal economic suicide. Very quickly, you will have a pineapple shortage. Now apply this example across the board, to all food items: Soon you will have food queues. Ultimately, you will have starvation.