Three Economic Lessons From Margaret Thatcher

Margaret Thatcher is an economic role model for today’s GOP. But did her policies work?

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At the news of former British Prime Minister Margaret Thatcher's death Monday morning, Washington has taken notice. Republicans on Capitol Hill in particular quickly sent out statements praising the Iron Lady. There are plenty of reasons why today's Republicans love the 1980s-era British leader, but one is their common economic principles. In a 1977 interview with U.S. News, Thatcher sounds nearly indistinguishable from many current GOP politicians.

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"The basic economic reality is that we cannot pay ourselves more than we earn," she told U.S. News. "Here in Britain, at long last, we may have grasped the point that deficit financing cannot and will not bring about long-term prosperity."

Thatcher led a nation both through a major recession and a subsequent recovery. Here are a few of the economic lessons she leaves behind:

1. Austerity hurts.

When she took office, Thatcher slashed public spending, taking on the "welfare state," and took a hard line on inflation, seeking to keep runaway prices under control. One result of this was skyrocketing unemployment. When she took office in 1979, Thatcher's Britain had an unemployment rate of just over 5 percent. In 1982, that rate would peak at nearly 12 percent.

It's a lesson that European nations in economic turmoil are learning again today: cutting spending can dramatically slow growth and take people off of payrolls. However, Thatcher remained unapologetic about her policies, even when Britons questioned her, famously telling parliament, "To those waiting with bated breath for that favorite media catchphrase, the U-turn, I have only one thing to say: 'You turn if you want to. The lady's not for turning,'"

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2. ...but sometimes too much government involvement is the problem.

Cutting spending was only one facet of Thatcher's broader economic program, which some term a "revolution." She set out on a program of privatization, such as shutting down or selling off companies in state-owned industries (policies that themselves also contributed to unemployment). While such massive economic shifts caused turmoil at the time, many experts say that these policies changed the face of Britain for the better for decades to come. As Pulitzer-Prize-winning author Daniel Yergin noted in 2012, even Labour Party PM Tony Blair later "recognized that without wealth creation, the risk was redistribution of the shrinking slices of a shrinking pie."

"Her initial program of austerity certainly accelerated the economic downturn, but I think you would have to say her liberalization policies and her privatization policies, and her encouragement of entrepreneurial spirit did then contribute to it going back up," says Steven Weisman, editorial director and research fellow at the Peterson Institute for International Economics, a think tank in Washington, D.C. By the time she left office, unemployment had returned to the 7 percent range. However, Weisman also cautions that because many economic swings are cyclical, it's impossible to attribute them to any one political leader.

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3. Not everyone benefits from a recovery.

Some economists argue that Thatcher's policies brought about greater wage inequality. In a 1993 paper, economists from Harvard University and Dartmouth College found that Thatcher's policies created not only job losses but higher wage inequality. Former Prime Minister Gordon Brown opined in an 2001 interview with PBS that, while Thatcher's policies helped to get rid of inefficient, bureaucratic government institutions, she did little to create new institutions to support the nation's poor.

 

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