Above: Dickson Igwe. Photo: supplied

Austerity- an idea of Economics Professor Milton Friedman- was blueprint for the western economy from the early 1980s, up and until 2007. Before the start of austerity, the 1970s were ruled by the ideas of another Economics Professor, John Maynard Keynes.

Keynes asserted that government management of the economy was the right way to steward scarce resources. However, Keynesian economic thinking failed to stabilize the western economy of the 1970s. Keynesian Economics also failed to tame the biggest monster of the decade: INFLATION.

Inflation in the 1970s was public enemy number 1. Inflation was a tenacious thief that stole from one and all. Inflation reared its ugly head in the form of ever escalating prices, and the decreasing value of major currencies when compared to goods and services. Inflation produced wage inflation. Wage inflation manifested in worker demand for higher wages and salaries under threat of walk out. Wage inflation in turn created economic unpredictability. In essence, inflation devalued the standard of living and quality of life of the average citizen in the west.

In the UK, the homeland of classical economics, powerful unions, and massively inefficient government owned corporations and utilities, went walking in sync with the inflationary monster. Unions ensured their members earnings were above the level of inflation. This was very much to the consternation of employers in business and industry. Eventually the duo sounded the death knell of the Keynesian Economic Model in that country.

The big unions held the British economy hostage. They could shut down the country with a strike and frequently did. That was until an even more determined beast arose to take them on.

The political entrance of Margaret Thatcher and her Conservative Party cohorts in 1979 was bad news for the unions. Thatcherism, the term given to the policies of Britain’s first female Prime Minister, was a product of the Milton Friedman Economic School. Thatcher utilized the economics of Friedman, especially monetarism, to create a new economic environment that was to become the crucible of a new British Enterprise Model.

The Lady with the Handbag was a conviction politician with a capital C. Thatcher was no flip flopper. She was not for turning. She certainly was not for shifting at any and every whim, as is typical of the pragmatic politician. Thatcher possessed a steely focus that served her and her cause well. The Grocer’s Daughter with her right wing troops jettisoned the beliefs of Keynes from the British political and economic lexicon.

Together with her inner circle, that included a tough guy called Norman Tebitt, and an enigmatic Chancellor, named Nigel Lawson, Thatcher introduced a new economic era to Britain, at the very end of the 1970s. Unfortunately for Thatcher, that circle of colleagues further included the names, Michael Heseltine, Douglas Hurd, and John Major, three men not as right wing as she may have liked, and who conducted the palace coup that saw Thatcher’s demise.

The names Margaret Thatcher and Ronald Reagan were sculpted into the public mindset of the 1980s. These two western leaders represented powerful forces arraigned against a status quo that borrowed deeply from the ideas of Karl Marx and Friedrich Engels. Socialism became anathema to a new band of free market oriented politicians, economists, philosophers, and privateers. Socialism was a philosophy more akin to Keynesianism than Austere Monetarism. Thatcher was political leader of a new economic establishment that sat eagerly at the feet of professors at the Chicago School.

These were a new breed. Men and women determined to establish a new capitalist order, and bury the idea of public intervention in the economy for good. Thatcherites, as they came to be known, were very aggressive in their approach. The miners in the UK were virtually destroyed, as unions across the country were set upon and defanged.

This was a new Austerity Model. Post 1970s Keynesian economics, Austerity propagated the idea of minimal government, minimal financial regulation, unfettered commerce, laissez faire- the concept of allowing the market to determine the course of events-, and the idea of the trickledown of wealth to the middle classes and poor: the result of political and economic policy that supported big corporations, private enterprise, and the propagation of wealth by the individual deemed enterprising.

Austerity further fostered the culture of unadulterated capitalism and the free for all market dynamic of the 1980s and 90s.

Ostentation made a remarkable comeback in the 1980s. Ostentation was last observed in the roaring and jazzy 1920s. Those were the heady days before the Great Depression that began with the Market Crash of 1929. Ostentation, extravagance, and super luxurious lifestyles were an epiphany of the 20s.

Ostentation was a new showy optimism that worshipped at the cult of materialism. Ostentation emerged, when an unfettered model of capitalism was released like a genie from a lamp, after the First World War ended in 1918. This was a genie that began life earlier with the new breed of industrial billionaire at the very end of the 1800s, and beginning of the 1900s, with last names like Rockefeller, Morgan, Vanderbilt, Hearst, and Carnegie.

The second era of heady ostentation and optimism was epitomized decades later in 1984, by the movie Wall Street. This told the story of the legendary, but supremely underhanded, Investment Banker, Gordon Gecko. Gecko was Poster Boy for a new economic era: the era of unabashed individualism, and where GREED became the corporate creed.

The 1980s and 90s also witnessed a series of scandals in the financial and stock markets. This was the result of a buccaneering and swashbuckling culture in global finance and banking. It pointed to something that would become much more ominous in the years ahead.

In the 1980s, the era of the wine bar, the box shaped mobile phone, and the ubiquitous Porsche, was established by a character called the Yuppie.

The Yuppie and his black counterpart the Buppie were Big City Slickers. These were the new polecats of Wall Street and the City of London. They were property developers, brokers, traders, dealers, and investment bankers; they lived the life of Riley. As they woke up in the morning in a five million dollar penthouse overlooking Canary Wharf, they knew quite clearly that they had arrived at long last. They were the Lords of all they surveyed: the progenitors of a new class of unscrupulous investment banker and wheeler dealer. Bohemians: these were the noveau riche. They were bold, brazen, boastful, devious, licentious, and even dangerous.

Manufacturing became a bad word. Whole factories were shipped to the Far East. A new culture epitomized by dizzying financial products became the mainstay of a new model of financial capitalism. As banking and financial regulation decreased, new products such as derivatives, hedge funds, arbitrage, equity swaps, futures, and options, became the mainstay of an increasingly arcane and mystifying model of the free market. This was an economics of the casino with a touch of Russian roulette.

House prices rose across the board as credit, loans and mortgages, became easily available, and even pushed on the public. The home became the measure of prosperity. The home also became the bastion of the credit culture. People measured their economic well being by the prices of their homes and borrowed to the hilt using their homes as security. The value of the home was compared to an escalator that went one way only: up. Policies that encouraged homeownership went hand in hand with a new culture of easy credit.
Businesses and governments did the same, borrowing to maintain an unsustainable modus Vivendi: private and public leveraging increased to record levels.

In the early 1990s the idea that house prices would one day collapse sounded like utter madness. However, when a broom cupboard in London’s Mayfair went on sale for a million pounds, some thoughtful persons began to have second thoughts. Wise heads raised eyebrows.

Austerity or unregulated capitalism was becoming unsustainable. In the USA, bad debt; a sudden collapse in house prices; mortgage payments that were months behind; and seriously questionable borrowing were a pin. Bad debt amounting to hundreds of billions of dollars was a needle whose pointed end was fast approaching a loan and credit bubble of staggering proportion. This was a balloon that was getting larger by the day with borrowing that was not backed up by any type of security, or even common sense.

However, in the enthusiasm that goes with hubris and overconfidence, no one neither noticed nor cared, apart from a very wise few. The west was playing musical chairs on the Titanic.

However, the reign of the investment banker was coming to an end. The western financial cruise liner loaded with bad loans and credit slammed into an iceberg in 2007, when the bubble burst, and in spectacular fashion. The western financial system began to sink, and fast.

To be continued

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