Chris at Stumbling and Mumbling has an excellent restropsective look at Margaret Thatcher’s economic legacy. (The title of Mr Dillow’s blog is a total misnomer – it is fluent, well-informed and rarely takes a misstep.) As ever, don’t neglect the comments.
Chris summarizes Mrs Thatcher’s influence on privatisation, labour markets, and macroeconomic policy. He concludes:
She has given a generation of non-economists the impression that support for free markets is equivalent to support for the vested interests of the rich. Nothing could be further from the truth.
I agree with Chris’s analysis, especially the point quoted above – and I would add a few glosses.
- We tend to take for granted some of the really good reforms and policy changes of that era, such as the abolition of exchange controls and the agreement to the Single Market Act. Maybe they would have happened anyway; maybe not.
- It is important to distinguish the period when Geoffrey Howe was Chancellor, which was largely disastrous, from Nigel Lawson, who was pretty good (at least from 1983 to 1987).
- Howe’s budget of 1981 was a catastrophic, unforgiveable mistake, clinging to the wreckage of monetarism long after any reasonable person would have abandoned it, leading to one of the deepest (and least necessary) recessions on UK history; as was Lawson’s expansionary budget of 1988 based on the arrogant belief that he had conquered the business cycle.
- Thatcher and Lawson should be commended for persuading the chattering classes that increasing trend economic growth is primarily challenge for microeconomic policy (ie improving the supply side), whereas controlling inflation is primarily a challenge for macroeconomic policy. This seems obvious today but it was a total reversal of the then prevailing wisdom which saw macroeconomic policy targeting growth (demand management) and microeconomic policy controlling inflation (price controls, wage freezes, hire purchase controls etc).
- Lawson should be commended for his simplification of the tax system (subsequently largely reversed, sadly).
- One of the defining features of Mrs Thatcher’s economic policy was her ambivalent relationship with the exhange rate. I think – though without much conviction – that we should have joined the Exchange Rate Mechanism of the EMS sooner than we did; and had we done so we might not have suffered the humiliating ejection that occured under the Major government. Mrs Thatcher had a largely instinctive set of opinions about the exchange rate – she believed in keeping sterling independent and "strong" – without any very sophisticated underlying analysis.
- The Thatcher Government has not got the opprobrium it deserves for breaking the link between the state pension and the growth of wages. Allowing our old people to fall behind rising living standards of the rest of the community year after year, creating a generation of retired people living in poverty, was unforgiveable.
- I think Mrs Thatcher did, in some undefinable way, change our attitudes – largely for the better – to the role of the state in private enterprise. Before her, there was a widespread assumption, under both Labour and the Conservatives, that the state should step in to prevent the collapse of particular firms or industries. That was mainly an expensive mistake, and Mrs Thatcher was robust in refusing to come to the aid of many sunset industries. (She was, however, not entirely consistent on this: her friends in industries such as aerospace continued to receive large public subsidies.)
See also New Economist, who has some good links to further commentary.
Update 17 October: See also BrightonRegencyLabour for 20 reasons why he hates Thatcher. Also the comments below have a lot of good stuff.