ft

Fed keeps wiggle room on rates
No matter how hard the Federal Reserve has tried to give itself room for manoeuvre on monetary policy, by decision time that flexibility has become more limited. That is the view of central bank-watchers in the weeks since the Fed reduced its benchmark interest rate for only the second time since the financial crisis. It is widely expected to cut again at its October 30 meeting, but US central bank officials have gone to great lengths to brace investors for a pause following that cut — barring a dismal turn in the economic data. Investors have so far accepted this reality, with the odds of another rate reduction in December modest at 30 per cent, according to Fed funds futures contracts compiled by CME Group. But should investors ramp up their expectations for another interest rate cut later this year, the Fed could very well find itself pressured into action once more, or risk sparking a market sell-off. In the days before the Fed’s so-called “blackout period” — in which officials go silent for around two weeks ahead of forthcoming policy meetings — vice-chairman Richard Clarida set the stage for the Fed to soon pause its easing cycle. “Monetary policy is not a preset course, and the committee will proceed on a meeting-by-meeting basis,” he said. New York Fed president John Williams echoed that “meeting-by-meeting” comment earlier this month, as did chairman Jay Powell at a speech in Denver, Colorado just a few weeks ago and during his press conference after September’s policy decision. While the Fed’s decisions on monetary policy may not be set according to a pre-determined path, the central bank has in recent meetings found itself facing elevated expectations from investors about how much accommodation is needed to stave off an economic slowdown and in Mr Powell’s words “sustain the expansion”. “To some degree, the market continues to back the Fed into a corner,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “They have never not done what the market largely expects going into a meeting.” A quarter-point cut at the policy meeting next week is all but guaranteed, given that the implied odds of such a move are now as high as 90 per cent, according to futures prices compiled by Bloomberg. At the beginning of the month, those odds were less than half that, at around 40 per cent, with another cut priced in by the end of next year. The odds doubled in just a few days after the release of data pointing to a US manufacturing slump, a services sector starting to soften and business investment stalling out. These data points happened to chime with some bad geopolitical headlines. The US and China appeared far from a trade deal and Brexit negotiations were progressing in fits and starts. Those sources of uncertainty have ebbed somewhat since — with the US and China agreeing to a temporary truce and the UK pressing for an extension to avoid crashing out of the EU without an agreement. But these are stopgaps rather than enduring solutions. For this reason, Nick Maroutsos, the co-head of global bonds at fund manager Janus Henderson, thinks the Fed may end up cutting interest rates again in December, even if they are resistant to do so in the face of what officials have called a strong labour market and healthy consumer economy. “If there is anywhere near a 50 per cent probability of a cut at the next meeting, they will definitely cut,” Mr Maroutsos said. “They do not want to surprise the market . . . and I absolutely think there will be volatility if the Fed surprises and doesn’t cut when the market expects it to.” To reduce the likelihood of any kind of Fed-induced volatility, Anne Mathias, a global rates and FX strategist at asset manager Vanguard, says Mr Powell will have to be careful in how he frames both his outlook and the rate decision at next week’s press conference — making it one of his most challenging public appearances to date. The Fed will have to “thread the needle”, she says, of cutting interest rates while reassuring on the economy and at the same time making clear that it does not see this as the continuation of a sustained easing cycle. Sonal Desai, the chief investment officer for fixed income at Franklin Templeton, sees this delicate balance as critical given questions about the stability of the economic system after nearly a decade of easy monetary policy. “The other side of the constant downward move in [government bond] yields is that investors are being crowded into risky asset classes,” she warned. For this reason, Ms Desai thinks the Fed should no longer aim to battle every bout of market volatility. “The Fed seems to be leaning against the wind every time the market panics, and that is a very risky thing for it to do,” she adds

The place was billed as being like a party in someone’s front room. It was a bar but a super-cool bar; a super-cool but friendly bar. Not like the snooty and aloof bars that one normally associates with the super cool; more like the Cheers bar where everybody wants to know your name. Except that it was way more cool and actually they didn’t really care about our name, aside from when they needed it to check our reservation. It was near Notting Hill, but the slightly more dangerous end, where a one-bedroom flat can be snapped up for as little as £600,000. As we walked in, a woman at the bar shouted “Hi”, as you might to a friend. This was an encouraging start. The website had promised “a bunch of friendly flatmates . . . welcome to your new home”. But then our friendly flatmate got back to zesting oranges — in that way you do in your front room — and didn’t really talk to us even though we were seated in front of her. But hey, that was OK because this was a super-cool place and we were all just chilling. And you know, sometimes you need to give your roomies some space. I admit I had not been well disposed to the place in advance. The reviews were all very positive but it was one of those venues my wife had found and, knowing I might kick against it, she had waited for the visit of one of her old college friends to railroad me into going, weaponising the weekend guest to make me comply. I don’t really want to have a go at the bar itself. It may not have been my thing, but it had a pleasant vibe and the cocktails were good. It was full of young, beautiful people who seemed to be enjoying themselves — so perhaps my problem was that I had crashed a party I should not have been attending. Or perhaps it was the fact that it was not really like a party in someone’s house but was, in fact, very much like a meal in a bar. I have been to many parties over the years and none of my other hosts has asked me to open a tab and leave my credit card behind the drinks cabinet. That didn’t seem all that flatmatey. Also, if this was a party, shouldn’t I be able to go and join the other tables? Something said no. Joining a table of strangers might work at a party — but in a restaurant, it screams “weirdo”. But then, I’m sure they thought I was too uptight for this scene. I can imagine them looking at each other and asking, “Who brought him?” Or perhaps it just wasn’t my idea of a front room. We’ve held the odd do in our front room, though we tend to be more at the prosecco and Pringles end of the market. I rather like our lounge, but the ambience probably does not exactly scream 24-hour party people. There are no scatter cushions and we have political biographies where the cocktail bottles should be. There’s a definite absence of citrus zest, though we do have a diffuser from The White Company — and I did put some Shake n’ Vac on the rug to get rid of dog smells. The girl has had a couple of parties there, which involved rolling up the rug and shifting the couch so they could dance, but there was no brunch menu and none of the guests had just seen the new Almodóvar. So maybe this is on me and I am just an old square. When I go to a bar, I want a bar. When I go to a restaurant, I want a restaurant. If I wanted to spend the evening in a front room, I’d go to my front room. I could be missing something but wandering into a bar and pretending I’ve been invited to a house party feels a little sad to me. In fairness to the place, they have a concept to distinguish themselves, and the numbers inside suggest it works for most who visit. When you strip it back, it’s just a bar with a mellow vibe and comfy chairs and that’s probably enough for most people. But more and more places are trying for this home-from-home shtick, playing up to people’s self-image or Instagram notions of trying to persuade themselves and others that their life is more exciting than it is. After all, if you were the type that got invites to cool house parties all the time, you’d be at a house party. I once nabbed a sofa in Starbucks but that didn’t elevate me to the cast of Friends.

There is still time for Kamala Harris (born 1964) if she gets a move on. Cory Booker (1969) will run while his campaign resources last. Beto O’Rourke (1972) remains nominally in the arena. Failing these long shots, it is increasingly likely that Generation X will never produce a president of the US. Outnumbered by baby boomers, the ruling cohort, and millennials, the eager dauphins, those born between the mid-1960s and the end of the following decade are doing as they have always done. They are passing without fanfare. The analysis of generations can sometimes verge on pseudoscience. Each one is too internally diverse to characterise with generalities. In America, the X-ers are associated with a bleak dropout culture in the 1990s. In Britain, they stood for a hedonistic materialism. The big bands of the time rather embodied the contrast. But whether they admired Nirvana’s insularity or the Everest of cocaine that Oasis hoovered, X-ers were united in the things they were rejecting. Big ideas. Noble causes. Political zeal. No living generation has shown less interest in changing the world. As a result, no living generation looks wiser today. At the time, Gen X was accused of apathy and stroppiness — often by itself. Bret Easton Ellis calls his the most “ironic generation that has ever roamed the earth”. Their disengagement was blamed on parental neglect (these were latchkey kids) and on economic disempowerment. Well, we now know what “engagement” looks like. In a world succumbing to true believers, X-ers appear less like sulkers and more like the kind of sceptics who keep society on the rails. It was not Gen X that voted for populism and it is not Gen X that promises a counter-revolution. They represent a precious interval of hardheadedness between two utopian generations. What was pathologised as their “alienation” turns out to be a lack of credulity in the face of big ideas. It is striking how apolitical they were in their entertainment habits. Looking back from 2019, when even superhero movies have a subtext, the defining Gen X films stand out for their near-total absence of allegorical meaning. Pulp Fiction does not have anything to “say”. Neither does Fargo. You would not know from the John Hughes films on which Gen X was nursed that Aids and the cold war were rampant at the time. The emphasis is always on the personal and the particular. This is a generation that threw up no great protest movement. It delivered no big electoral shock. Pressed to join a cause, its contribution was so often the curled lip and the flippant shrug. Its view of the world was deeply jaundiced but not so hostile as to actually do anything about it. I mean every last word of this as the highest praise. This millennial salutes his immediate elders for their disinclination to change things. Where others see bloodlessness, I see prudence. In the coming years, I suspect I will not be alone in wishing that other generations shared their sardonic refusal to get carried away. David Foster Wallace argued that postmodern irony did not achieve anything. It did. It achieved the prevention — or at least the delay — of today’s all-too-sincere passions. The great error is to confuse the circumspection of X-ers for mediocrity. Their imprint on modern life is wildly out of proportion with their generational size. Some of their number founded world-improving companies (Jeff Bezos, Elon Musk, Larry Page), which suggests no lack of talent or pluck on their part. It is just that these gifts were seldom deployed in public life. The cream of the generation chose business and the arts over politics, which is why their presidential hopefuls come across as so many three-star hotels. They lack the political vision of their elders and juniors. But I mistrust vision. Sometimes, vision results in blameless people having to pack their things in the night and flee their own country to survive. I like caution. I like moderately countercyclical fiscal policy with a view to 2.25 per cent annual growth over the period, thanks. The least excitable of generations is about to miss its chance to rule. It would be just like them to shrug. I fear none of us can afford to.

Tett to GDP or not to GDP

Next week the US government releases its latest data on gross domestic product for the third quarter of 2019. It’s a fair bet that this will trigger debate among pundits in Washington and on Wall Street about whether the world’s largest economy is heading for a recession — and what that might mean for the re-election of Donald Trump. But, as investors scrutinise those seemingly precise digits, are we missing a trick? Is it possible that apparently crucial GDP numbers are actually an illusion — or a distortion — when it comes to assessing the economy? That is the seemingly heretical idea currently being tossed around some parts of America’s Federal Reserve, as well as in academia and parts of Wall Street. For as Silicon Valley keeps delivering new technological innovations, these are not only transforming how we live but also overall growth. Some economists fear, therefore, that our old measures of GDP no longer capture the “real” economy, not just in terms of output but also of prices and our own incomes. “On conservative assumptions, we believe official data understates US GDP growth by 0.75 per cent per annum and overstates inflation by 0.4 per cent,” argues Mark Cliffe, chief economist at ING Group. Questioning GDP is nothing new. As both the economist Diane Coyle and David Pilling, my colleague at the Financial Times, have noted in their respectively esteemed books, GDP has always been a flawed concept. It was, after all, devised in the early years of the 20th century to track industrial output, and cannot capture other aspects of our economic life such as unpaid housework or even some paid services. What has really changed is that the explosive growth of technology is pushing more economic activity out of the realm of classic GDP measuring tools. This includes “free” services (say, social media) and huge improvements in the output of technology (such as the rising speed of mobile phones). The GDP data also misses some “intangible” items such as brands or intellectual property (never mind that this is estimated to be generating three-quarters of the value of US stocks). This matters. Cliffe of ING reaches his (gu)estimate that 0.75 percentage points of GDP is being missed each year by noting that the government’s own statisticians admit that tech activity worth about 0.4 per cent each year is excluded from GDP — then adding separate estimates for the missed service sector and intangible activity. He stresses, however, that 0.75 per cent is almost certainly an underestimate, as the real figure is “perhaps 1 per cent annually or even as much as 2 per cent, because of the growing importance of services in general”. While that might not sound dramatic, he calculates that, “If GDP has been underestimated by 1 per cent per annum since 1990, then median income has [actually] risen 50 per cent instead of the 15 per cent recorded.” To put it another way, some analysts think the dominant narrative about the US economy is partly wrong: although it is popularly presumed that mean earnings have stagnated in America in recent years as productivity has (seemingly mysteriously) collapsed, this partly reflects ­mismeasurement, not lived reality. Some economists might strongly disagree. But Cliffe is not alone: officials at the International Monetary Fund are analysing the issue of mismeasurement, as are academics at MIT. “We haven’t been measuring big chunks of the economy and understanding where people are getting real value,” says Erik Brynjolfsson, an MIT professor who is developing an alternative measure of GDP that tries to track the size of the excluded “free” services by asking consumers what they would pay to replace them and then factoring these calculations back into the data. (This suggests that Facebook, YouTube and Google search are worth almost $600, $1,100 and $17,000 a year respectively to each consumer.) Perhaps more surprisingly, the Federal Reserve chairman Jay Powell seems to agree. Last week, he cited the work of Brynjolfsson in a speech to an economics conference, and then pointed out that two of the Fed’s economists — David Byrne and Carol Corrado — have recently conducted their own study of the missing tech activity. “Good decisions require good data, but the data in hand are seldom as good as we would like,” Powell observed. So is there a solution? One option would be to put more money into statistical research to keep up with technological changes (at present it can take about a decade to capture new tech in inflation baskets, for example). Another would be to publish the alternative GDP measures that other groups are creating. And a third possible response is to stop obsessing over precise GDP digits. That is not easy in a world where many investors and analysts (and some journalists) derive their living by creating a drama out of these quarterly forecasts and announcements; it is only natural that we all seek a compass in a confusing world. But when that data is released next week in the US, it is worth remembering this: in today’s world, voters will experience “the economy” in ways that are very different from economists. Particularly when they have a mobile phone in their hands.

GDP is beyond flawed, it causes economic harm because it encourages bad policy.  Since it measures total activity rather than true wealth creation, any value-destroying and wasteful outputs are recorded as positive contributors to GDP.  Thus an economy in which every person was employed sharpening pencils to the butt could show growth by increasing the amount of employment wasted on destroying pencils.  This is the fundamental insanity by which Keynesian 'demand-management' schemes apparently produce 'growth'.  They do so at the expense of future write-offs when the waste is recognised. Chinese GDP performance has been stellar for thirty years.  Embedded in the aggregate output are colossal liabilities for white elephants to be written off, unresolved environmental costs and industrial over-capacity.  When those costs are borne, GDP will shrink.  Yet policy dependence on GDP results in output targeting and statistical goal-seeking which encourage waste and capital consumption.  Such 'growth' is not worth having.  In fact the pursuit of such growth reduces the economy's wealth over time, such that positive GDP growth turns out to be negative wealth accumulation.  Look to the Former Soviet Union (or any Marxist economic experiment) for empirical evidence that output depends more on quality than quantity. If there is a single economic metric which should be the focus of policy-making, it is Total Factor Productivity growth.  This is the one measure which can both be influenced by policy decisions and reflects rising standards of living across the economy.  It responds very slowly to long term structural policy choices aimed at increasing not just capital efficiency but also education, innovation, enterprise and intermediation.  Our politicians should ditch GDP and design long term policies which enhance skills, well-being, capital efficiency and business-friendliness.  That is the econometric route to greater prosperity.

On Friday, the Bureau of Economic Analysis (BEA) releases the first estimate of US GDP for the second quarter. Recent forecasts have it topping 4 per cent—the fastest growth since the third quarter of 2014. President Trump is predictably excited. Days before the forthcoming report, he tweeted:

He is not alone in thinking of GDP as shorthand for national economic well-being. Dubbed as one of the greatest inventions of the 20th century, it has long been a closely-watched metric for politicians, pundits and journalists alike. But for nearly as long as GDP has been lionized, it has faced flak, too. That’s because it captures what economic historian Adam Tooze calls “ a narrow and somewhat arbitrary slice of reality.”

GDP is the sum of the total value of all final goods and services produced within a country’s borders during a specified set of time. This definition excludes a lot. Unpaid labour like parental housework and childcare does not figure in, nor does volunteering. But, don’t worry! The sale of stolen goods for cash does, points out the FT’s David Pilling.

In an earlier era, a fixation on quantity made sense (think Henry Ford and assembly lines). But the economy doesn’t look like this any longer. Services have replaced goods, freelancers are a growing share of the workforce, and value is increasingly derived from intangible assets like design, branding and software. Add to that Big Tech bringing back the barter economy by swapping services for personal data, and GDP, says economist Diane Coyle, no longer works in the 21st century.

Many flaws exist, but ahead of Friday’s report, we’re going to focus on one in particular: inequality. In recent decades, income inequality has marched higher in nearly every country across the globe. Thomas Piketty, Emmanuel Saez and Gabriel Zucman show that wages for the richest 1 per cent of Americans have grown far faster than the rest.

But this is not demonstrated in GDP's headline numbers. Austin Clemens and Heather Boushey at the think tank Equitable Growth Washington Center for Equitable Growth show that in 1981, 1984 and 1986, income growth for the bottom 50 per cent of earners was negative even though growth for the economy overall was in the green.

The chart is based on Piketty, Saez and Zucman’s data, which uses Net National Income instead of GDP as a reference point. These measures largely track one another, so the same conclusion can be drawn either way.

So what explains the divergence? Blame averages, or what academic Martin Weale calls plutocratic measures of economic growth. Income growth for high-earning households, he writes, have far more impact on total growth than that of lower-earning households.

Equitable Growth put together a graphic to visualise this dynamic:

In scenario 1, growth is uneven between the poorest 50 per cent, the middle 40 per cent and the richest 10 per cent. While earners at all income levels receive some benefit, nearly half of the population saw about half of the 5-per-cent GDP growth for the total economy. In scenario 2, which Clemens argues is representative of today’s times, 90 per cent of the population sees none of that growth. In fact, incomes for the bottom 50 per cent actually contract.Still, GDP growth looks strong at 5 per cent.

According to Jason Furman, former Chairman of President Obama’s Council of Economic Advisers, one fix would be to look at median income rather than mean income. That would throw out a lot of information about everyone who is not in the median, he writes, but doing so would remove the skew from uneven distributions. Another is to move beyond the one-number-fits-all approach of GDP and instead track the growth of different income brackets. Others suggest entirely new measures altogether, but data is sporadic and varies widely between countries.

For Coyle, there’s an urgency to finding an alternative way to gauge an economy's health. “What the state does not see, because of the absence of statistics, is invisible in policy making,” she points out. “We might not be in the place we are politically if people had been looking at the distribution of growth over the past ten or twenty years.”

We hope to take a deeper dive into different proposed ways to fix GDP soon, and welcome readers to leave their favourite ideas in the comments.

Upbeat asset markets confound bears but beware nasty ending

Michael Mackenzie

As the summer “growth scare” recedes, it seems that 2019 may be remembered as yet another year marked by nothing more severe than a temporary soft patch.

Forecasting the next significant economic contraction remains very much an art, given the determination of central banks to avoid such an outcome.

A pronounced drop in bond yields along with falling oil and commodity prices have played an important role in easing financial conditions.

Investors still have reason to focus on the risk of a hard landing from lofty asset prices. Concerns are centred on the contraction in global manufacturing, which may entail a recession for Germany as the Bundesbank conceded this week.

On the plus side, though, consumers are holding the line, supported by firm employment and a robust service sector. Crucially, asset markets have not suffered a big hit.

That final ingredient — upbeat asset markets — is an often under-appreciated prop. The influence of financial markets and asset prices upon the broader economy has intensified during the past decade.

While all the focus has understandably fallen on economic data, both consumers and companies are reliant on effervescent markets that are underpinned by central bank policies of suppressing interest rates and volatility.

True, in aggregate, global equities have gone sideways since they peaked in January 2018. Nonetheless, for all of the angst generated by this year’s trade friction and evidence of faltering global activity, investors with portfolios holding a broad mix of equities and bonds can be pleased with their performance.

Steven Blitz, chief US economist at TS Lombard, examined the past decade of low rates and highlighted how US household capital investments have swung towards equities and bonds, and away from real estate since 2009.

In turn, he noted, as do many others, how non-financial groups have favoured debt over equity rather than using low interest rates to boost capital spending.

This leaves consumers and indebted companies vulnerable to a sharp drop in equity and bond prices, or as Mr Blitz warned: “The upshot is that household finances are much more sensitive to a downdraft in capital market values, equities mainly, than being choked off from credit.”

Monetary easing and more importantly, the regular infusion of liquidity by central banks into the financial system, are essential sources of support for asset prices, particularly at a time when some of the pips are squeaking.

After recent pressure in the short-term US funding market, the Federal Reserve has started buying $60bn of Treasury bills each month and raised the size of its short-term injections of cash into the financial system this week.

The message clearly resonates that central bank liquidity tightened too much over the past two years for a highly financialised US and also for the global economy.

The idea of central banks normalising policy has run a brief course that peaked last year and it means investors must monitor the eventual outcome.

This week, Mario Draghi during his final press conference as president of the European Central Bank, said the recent IMF meeting in Washington had revealed a shift in thinking among policymakers — yields will remain low for a long time as real interest rates have declined.

Unfortunately, this entails a rather nasty ending with timing as usual the surprise factor. Already, the past decade of moribund interest rates has spurred a scramble for higher returns that has increasingly ventured into alternative assets such as real estate and private equity — areas that are defined by a lack of liquidity at the best of times.

Regulators may take comfort in “safer banks” a decade after the financial crisis but a serious concern is whether at some point investors locked up in private markets for long periods are compelled to sell their more liquid public holdings.

The risks of contagion from private markets to those in the public arena are noted by the IMF’s Global Financial Stability Report: “Similarities in portfolios of investment funds could amplify a market sell-off, and illiquid investments by pension funds could constrain their traditional stabilising role in markets. In addition, cross-border investments by life insurers could provoke spillovers across markets.’’

This also extends globally and in particular to Japan, where some of its biggest institutional players are intent on buying US assets and not hedging the currency risk. Longview Economics highlighted Bank of Japan data that showed “outstanding investments in overseas credit products by financial institutions is now equivalent to over 7 per cent of total banking system assets”.

During the era of moribund interest rates, central bankers have debated the costs and benefits of such a policy and stuck to the script that easing can protect consumers and companies.

But for how long? The eventual costs of “lower rates for longer” entering a second decade are not comforting. michael.mackenzie@ft.com

The eventual costs of ‘lower rates for longer’ entering a second decade are not comforting

End game

The final volume in Charles Moore’s biography of Margaret Thatcher proves he’s more than a match for his gargantuan task, writes William Waldegrave

Margaret Thatcher: The Authorised Biography, Volume Three: Herself Alone by Charles Moore

Allen Lane £35 1,072 pages

A tearful Margaret Thatcher leaving 10 Downing Street for the last time at the end of November 1990 — Mirrorpix

Mrs Thatcher’s removal was the result of a conspiracy” states Charles Moore baldly towards the end of the third and final volume of his magnificent authorised biography of Margaret Thatcher. And yet everything else in this fine book shows that it was only a conspiracy in the sense that one might say of a railway accident that it was a conspiracy between rails, engine, wrongly switched points and the laws of physics. The crash in Thatcher’s case took place almost in slow motion, and its antecedents, carefully chronicled by Moore, went back years.

This volume starts in 1987 with Thatcher’s third general election victory and covers her fall from power in 1990, and her subsequent decline. The two previous volumes on which Moore has worked for 20 years cover her childhood and early years, then her first victory of 1979 and the desperate battles of the first years of her government.

Not one but two successive chancellors were locked in battle with her over how to manage inflation; not one but three successive foreign secretaries were in flat opposition to her approach to Europe. And finally, after her crucial role in partnership with Ronald Reagan in the ending of the cold war, she managed to marginalise herself during the final climactic events by her opposition not only to her own government’s stated policy but to that of the US as well over the reunification of Germany.

The astonishing thing is not that Thatcher fell, but that she came within two votes of survival in the first round of the fatal leadership challenge by Michael Heseltine. If her civil service staff of Charles Powell and Bernard Ingham had been allowed to run that final campaign, in place of the incompetents who did run it, she would have won; but the crash would only have been postponed.

So the details of what actually did happen in November 1990 when she fell, are not really the point. It did not actually much matter what Tristan Garel-Jones said to Chris Patten, or when exactly Peter Morrison was fast asleep, or the degree to which John Major, her anointed successor, held himself ready. All that was just the noise of the crash. It was not why she found herself, to her total incomprehension, fighting for her political life.

The febrile Westminster gossip is good fun, and Moore is good at retailing it; but he has also made himself a good enough historian to show us that this is all surface stuff.

The root causes lay far further back and much deeper. Why could Thatcher not find a chancellor with whom she could agree? Or a foreign secretary? Why was she, far more than Labour’s Neil Kinnock, the real leader of the opposition to the crucial central policies of her own government, on the management of the economy and on Europe?

The answer, Moore shows, lies in the way her strengths were also her weaknesses. In the first periods of her government she articulated very widespread national feelings. She articulated them harshly, but she represented the zeitgeist when she said there was no alternative to confrontation with politicised trade unions. Labour’s James Callaghan and David Owen of the Social Democrats knew it too, as did thousands of ordinary trades union members. Ditto on the ending of the soft corporatism which had brought sloppy monopolist companies in both public and private sectors far too close in to the state. Ditto on appeasement of the elderly monsters of the early 1980s politburo in the USSR.

On all these and more Thatcher put into action a very deep seated desire for change, widely shared, and saw it through. Then there was the high drama of victory in the Falklands, to which no other of our politicians of the time could have led us. “You have to hand it to her,” said even those who would never vote for her in my constituency of Bristol West. These were her strengths: the capacity instinctively to understand what a great swath of the British people wanted done, and then the courage to do it when others didn’t dare.

But then it became much more difficult, and this is why Moore is right to start the final volume with her victory in the 1987 election. The old dragons had been slain, or were expiring fast. How to focus on the much more complicated discontents, in so far as they existed outside the minds of rightwing think tanks, in education, health, and social care? There was no broadly shared direction to articulate into policy. People grumbled about all these things, but didn’t like the sound of alternatives. They liked the sound of doing away with the domestic rates, but not at all with the alternative, the community charge or poll tax which I and others crafted.

She understood the widespread grumbling about Europe, and grumbled away with the best of them: but she either couldn’t, or wouldn’t change her own government’s policy on it. She made it impossible to conduct that policy effectively, but could not find the ruthlessness or the political power base necessary to change it. So too with Chancellor Nigel Lawson and Europe’s Exchange Rate Mechanism: she made it impossible for him to conduct what was supposed to be government policy, but could not find the ruthlessness to sack him nor the authority to generate a different policy. Thus his resignation, when it came over what seemed a trivial matter, was wholly incomprehensible to the outside world. These were the weaknesses that made the train crash inevitable.

Moore tells all this skilfully, and with sympathy for most of the protagonists. He could perhaps have kept his old journalistic instincts a little more under control in the footnotes, and left some Olympian judgments of people he doesn’t like to his newspaper columns: with his historian’s hat on he has given us all we need to make our own judgments.

But these are second-order cavils. He becomes a fine historian when he describes the extraordinary skill with which Thatcher used her position with Reagan and with Gorbachev to help protect both in different ways from their own fundamentalists (and he shows how both were using her, too). And where his obiter dicta on some others are not always fair (on the late Lord Rothschild, for example) he shows us all the evidence we need to make our own judgments on others: above all, to see what an extraordinarily talented public servant was Charles Powell.

He is right too to make clear the affection and respect which many who worked for Thatcher felt for this pigheaded, formidable, vulnerable, maddening, brave and patriotic woman, and how many of them really loved her even — perhaps especially — in her tragic final decline. She did not always choose her colleagues well; but she chose well when she appointed Moore to his gargantuan task.

William Waldegrave was a Conservative

MP from 1979 to 1997 and is author of

‘Three Circles into One, Brexit Britain:

How Did we Get Here and What Happens Next?’ (Mensch)

Her strength was to understand what a great swath of the British people wanted done — then do it