Why a new start might be needed in Britain

 Forty years of  Thatcherism has caused so much damage to Britain that an incoming Labour government might need to start from scratch in rebuilding a viable industrial economy.

They could learn from the 'infant industry' support program instigated in America by Alexander Hamilton and practised from the 19th century to 1945. Infant or new American industry was protected, nurtured and supported by the government until it achieved world leading status during WW2. The infant industry program was reduced, but not stopped when it didn't need so much protection.

The Conservative party has lost almost all British industry to China and counties like South Korea.

All of the countries that have taken British industry used high levels of government support, and still do. One of Keynes' students (I forget his name) advised the Chinese government.

Labour seems afraid to challenge Thatctherism or neoliberalism for some reason but it's, or should be the fundamental difference between Labour and the Tories.

Whether you are Keynesian Labour or Socialist Labour we are diametrically opposed to the dog eat dog, grasp and grab freemarket buccaneering Tories.

A fresh start may be needed after covid and Brexit and the Tories have done their worse.

How Britain became a manufacturing economy

Britain became a manufacturing economy during the reigns of Henry VII, VIII and Elizabeth. The monarchs may have been directly involved in this, quite probably Henry VII was, and or their fixers such as Wolseley and Cromwell. Or unknown merchants of the time. (There's a PhD in this)

Prior to the 1480s when Bill Stanley grabbed the crown for Henry, Britain was a major supplier of wool to manufacturers in the low countries. The wool was made into garments there and sold across Europe. Much of the finished goods were exported to England. In a situation like this, the manufacturer of the finished products has the advantage and is the one who makes the money.

Let's assume Henry initially took command of this aspect of the English economy and trade.

He wanted England to be a manufacturer of finished wool goods as well as a supplier of raw wool. Manufacturing woollen goods was a highly skilled and technically advanced process involving machinery and craft skills not available in England. So Henry had to develop and nurture this manufacturing process.

Perhaps he set up looms, trained the craftspeople and mechanics and competed on the open market like the Thatcherite myths would have it. No, he didn't!

He put embargoes on the exported raw wool and limited imports. He used import taxes and quality regulations to protect the fledgling English industry. This forced technology and skills to grow rapidly in England with the help of Flemish weavers tempted over here. (It's where the name Fleming comes from)

The Henry's and Elizabeth didn't stop when they were competing on equal terms with the low country manufacturers. They hardened the tariffs, taxes, regulations and embargoes until they ruined the low country woollen industry. Once English manufacturing led the way, quality regulations were put in place to stop unscrupulous entrepreneurs setting up to make lower quality goods and out compete the established industry.

There was no free market about this. Although the state and government of England was different to what it is now, the first manufacturing in England was done with full state support both in the market and in nurturing the skills and technology over many years.

Years later just before and during the industrial revolution, Great Britain forced the colonies to be limited to supplying raw materials or base goods, pig iron from America and calico from India for example.

Britain was ruthless, especially under Walpole, in using military might, seapower, tax, embargoes, customs, direct state support, subsidies and all the rest to promote and protect British trade.

There's never been a free market.

The big daddy of the free market Adam Smith was an outspoken supporter of the 'Navigation Acts' These forced overseas exporters, of raw material, to Britain to use only British ships. If you didn't use a British built ship flying the British flag you didn't land your goods in Britain.

How animal Spirits point the way to behavioural economics

Keynes seemed to use odd terms such as sticky prices and animal spirits.

The notion of animal spirits was just as important to Keynesian analysis as sticky wages and prices. He uses the term to mean the emotions humans feel when making decisions. Economists prior to Keynes, and the current UK Conservative government consider humans to make rational decisions in their best interests. If this was the case almost no one would vote Conservative.

It's not a made up term, it does show Keynes philosophical leanings and it's straight out of the Eton/Cambridge thoroughbred stable.

The term animal spirits was first known to be used about 300BCE. It's from the Latin spiritus animalis and it means 'the breath that awakens the human mind'. In Roman anatomy, it refers to what they thought was fluid surrounding nerve endings and can result in events like mass mania and mass hysteria, human herd behaviour.

The term animal spirits doesn't appear in psychology or consumer psychology but it does figure in finance. It represents emotions like hope and confidence, fear and pessimism. It's also considered to be socially infectious so a mood can be generated among a group or even a large section of the financial sector. Whether the collective mood is high or low can affect the decision making in investment and banking. The mass mood can act against logical expectations. Mistakes are made because of 'animal spirits' acting contrary to common sense.

Keynes knew this and knew the same herd behaviour can happen to consumers. This is one of the reasons he realised the classical laissez faire economic ideology that had preceded his theory was wrong (and is wrong today)

Keynes was pointing the way to behavioural, economics and consumer psychology. A low or pessimistic mood would now be called cognitive dissonance.

Two contemporary American economists, Akerlof and Shiller recommend governments take 'animal spirits' into account in their economic planning. They present strong Keynesian arguments in their 2009 book, Animal spirits how human psychology drives the economy and why it matters to global capitalism. (quite a title for a best selling book).

The two foundation stones of Keynesian economics

Demand is key not supply. 

Wages and prices can be slow to adjust to change.

Keynes explained why recessions occur and put forward a set of measures to keep an economy on an even keel. Earlier economists thought the market would balance the ups and downs of business cycles and the market should be left alone to work through what Adam Smith called the invisible hand. Keynes disagreed with this and argued that recessions can turn into depressions and become permanent.

Two foundation stones of Keynesian theory.

1. Aggregate demand (AgD) might not be enough to allow firms to employ people resulting in layoffs and high levels of unemployment. 

Aggregate demand is the total demand for products and services in an economy including consumers, business and government.

2. The macroeconomy (the whole economy) adjusts slowly to the reduction in demand because wages and prices are 'sticky'. Demand falls but wages and prices tend to stay the same and this fuels even more job losses and makes a recession worse.

These two factors can set a downward spiral in motion.