In today’s issue:
- Keynesians versus monetarists is a false narrative
- James Callaghan was lying in 1976
- We are an inflation nation once again
This month’s issue of The Fleet Street Letter is causing quite a stir. It claims that someone other than Sir Keir Starmer, Rishi Sunak or Nigel Farage will be leading the country on 5 July. And boy do they have plans for you…
But if we’re right, it doesn’t just have implications for the future. It also means history will have to be rewritten. Especially our understanding of the 70s and 80s.
You probably have your own narrative of what happened during the inflationary spikes back then. And how they were brought back under control.
James Callaghan summed it up like this at the Labour party conference in Blackpool, 1976:
We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step. Higher inflation followed by higher unemployment. We have just escaped from the highest rate of inflation this country has known; we have not yet escaped from the consequences: high unemployment.
That is the history of the last 20 years. Each time we did this the twin evils of unemployment and inflation have hit hardest those least able to stand them. Not those with the strongest bargaining power, no, it has not hit those. It has hit the poor, the old and the sick.
We have struggled, as a Party, to try to maintain their standards, and indeed to improve them, against the strength of the free collective bargaining power that we have seen exerted as some people have tried to maintain their standards against this economic policy.
Historians and economists point to that speech as the turning point. It was the moment when even the left wing of the political class figured out that Keynesianism doesn’t work.
The country turned to the theories of free marketeers FA Hayek and Milton Friedman instead.
Friedman was renowned for championing free markets with one major exception: the market in money itself. And so independent central banks were entrusted to set interest rates and the money supply. Just as Keynes had believed governments could be trusted to pursue sensible fiscal policy before that. Why central bankers would do a better job than politicians remained a mystery.
Nevertheless, the world embraced monetarism and embarked on cutting inflation by monetary means.
Interest rates went so high they’d cause a heart attack today. And inflation plunged. The price we paid for price stability was unemployment, bankruptcies and recessions. But only for a while.
Thatcher, Reagan, Volcker, Greenspan and so many other ideological and economic heroes were forged during that time. They set us up for the prosperity of the 90s and early 2000s.
But it was all a lie. And not just because the financial crisis of 2008 destroyed the reputation of Monetarism.
Keeping interest rates too low for too long only created an artificial stability. One that hid a rather large housing bubble. And when it popped, the whole financial system threatened to go with it.
These days we understand that Keynesianism and Monetarism are two sides of the same coin known as interventionism. And whether it’s the politicians making a mess of government spending, or central bankers making a mess of the money supply and interest rates, it always ends in disaster.
But that’s beside the point. Because, even by its own standards, that narrative about the 80s and 90s is deeply flawed. The truth is something completely different.
As this month’s issue of The Fleet Street Letter claims, the inflation of the 70s was really a deliberate policy.
As was the inflation of 2021-2023.
It’s how we deal with too much government debt.
Whether it’s a Napoleonic war debt, a world war debt, or a pandemic debt doesn’t matter. Whenever government debt-to-GDP levels get too high, we inflate them away. And then pretend the inflation was some sort of surprise that nobody saw coming, could explain at the time, or prevent.
Whoopsies.
This obviously has implications for our future. Our debt-to-GDP ratio is still dangerously high. And the impact of more inflation on financial markets would be devastating.
The meltdowns of 2022 were some of the worst in financial market history. To predict repeated inflationary surprises is to predict chaos in stock and bond markets for years to come.
But it also means our ideological and theoretical standoff between the Keynesians and the monetarists was just a cover story for what was really going on in the 1970s and 1980s.
What really happened?
You’ll have to read the monthly issue to find out. We’ve decided to release it in the public interest.
Apparently there’s an election on. So everyone needs to know who really governs the country. And what they plan to do, again.
If you read the report, it will radically alter how you view our government. Both in the future and our history.
Inflation is not a disease, it’s a cure
Ludwig von Mises pointed all this out in 1958:
‘The most important thing to remember is that inflation is not an act of God; inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy — a deliberate policy of people who resort to inflation because they consider it to be a lesser evil than unemployment. But the fact is that, in the not very long run, inflation does not cure unemployment.
‘Inflation is a policy. And a policy can be changed. Therefore, there is no reason to give in to inflation. If one regards inflation as an evil, then one has to stop inflating. One has to balance the budget of the government.’
If only Callaghan and the Labour Party had attended that lecture. If only investors had read the transcript in 2021. They would’ve known what was really going on. And what was coming next.
One thing is for sure. The nation’s true leaders are well aware they can use inflation to cut the national debt. Because they’re doing just that.
The good news is, we’ve turned von Mises’ theories into practical investment advice for you. But first, you need to discover who is behind the inflationary policy the UK’s real government is pursuing.
Then you can look back at what happened in the 1970s and discover the truth about what your government did to you.
Until next time,
Nick Hubble
Editor, Fortune & Freedom
