She deserves the lion’s share of the credit for the U.K.’s economic rebirth and renaissance, but she also had the wisdom to appoint some very principled and very capable people to her cabinet.
Such as Nigel Lawson, who served as her Chancellor of the Exchequer (akin to a combined Treasury Secretary/OMB Director in the U.S.).
Lawson died last week, leading to many tributes to his role is resuscitating the U.K. economy.
The Wall Street Journal‘s editorial summarized his achievements.
…our problems are solvable, as they were a half century ago. One of those crucial problem solvers was British politician Nigel Lawson, who died this week at age 91. …the 1970s…was even more miserable in the United Kingdom than it was in the U.S. By the time Margaret Thatcher led the Tories into office in May 1979, inflation was raging and the country had been wracked by strikes in its “winter of discontent”… Lawson entered Thatcher’s administration… He made his historic mark as Chancellor of the Exchequer starting in 1983. He’s best known for his tax reforms, which reduced the top personal income-tax rate to 40% from 60% and brought the top corporate rate to 35% from a 1970s high of 52%. He also was a steward of the Thatcher administration’s privatizations of large state-owned firms and the “Big Bang” financial reforms that would transform London into a global financial center.
In a column for CapX, Madsen Pirie examines Lawson’s work.
Nigel Lawson left a huge legacy. Under his stewardship Britain went from being the sick man of Europe into becoming an economic powerhouse and one of the world’s leading economies. He is regarded by many as the finest Chancellor of the 20th century… Lord Lawson held the firm conviction that lower taxes created space for enterprise and opportunity, and made it his policy that in every Budget he would lower the burden of taxation and abolish at least one tax. …During his tenure, Britain was transformed from being an economy in which most major businesses and services were owned and run by the state, into one in which they became private businesses, paying taxes instead of receiving taxpayer subsidies. Failing and outdated state enterprises became modern, successful private ones. …His 1988 Budget…announced that all taxes above 40% would be abolished, and that the basic rate would be cut to 25%, its lowest for 50 years… Within a very short time, more money was coming into the Treasury from the lower rates than it had been taking in from the higher ones. It was a vindication of the Laffer Curve. …The top 10% of earners had been paying 35% of the total income tax take. Under Lawson’s lower rate that went up to 48%. In rough terms this meant that the top 10% went from paying just over a third to just under a half of total income taxes.
In other words, the lower tax rates in the U.K. had the same positive impact as the lower tax rates in the U.S., both in terms of encouraging growth and confirming the Laffer Curve.
It’s not often (actually, only once) that I share a video lasting nearly two hours. But this video – revolving around the intellectualrivalry between pro-market Hayek and pro-intervention Keynes – is an excellent summary of 20th-century economic policy.
We learn about the growth of socialism and communism during and after World War I.
But other forms of intervention and redistribution gained new adherents, especially when Keynes argued that the Great Depression was the fault of capitalism (for what it’s worth, I think the video fails to include analysis on how the New Deal actually lengthened and deepened the downturn).
Unfortunately, the Keynesian narrative dominated and the video informs us that the people of the United Kingdom voted for a socialist government when World War II ended. Which then led to the nationalization of the economy’s “commanding heights” and the enactment of the welfare state.
The United States didn’t veer as sharply to the left after the war, but there was no meaningful challenge to the the statist consensus that arose in the 1930s.
On the bright side, Germany rejected socialism by getting rid of price controls and allowing markets to flourish (the video overstated the degree to which a welfare state was imposed). But that was the exception to the rule. The world was gravitating to statism, including the developing world.
My favorite part of the video is that we learn about the creation of the Mont Pelerin Society and the emergence of Milton Friedman and the Chicago School.
That was the start of the laissez-faire counterrevolution. But it didn’t yield immediate results.
The left was in charge of economic policy from the end of the war through the 1970s in the USA and UK, regardless of which political party held power.
But bad policy sooner or later leads to bad results.
And that changed the political environment.
The latter part of the video tells the very happy story on how the sensible ideas of Hayek and Friedman eventually translated into the historic elections of Ronald Reagan and Margaret Thatcher.
If you watch the entire video, you’ll learn about how Reagan and Thatcher successfully overcame major challenges as they shifted their nations toward economic liberty (most notably, Reagan tamed inflation and Thatcher denationalized state-run companies).
Her wise words also could be applied to what happened about a decade ago in Greece. And what’s about to happen in Italy.
But let’s not forget that the United States isn’t immune to the problem of excessive government. The Wall Street Journal has a sobering editorial on the pro-spending sentiment that dominates the nation’s capital.
…in Washington the politicians are debating how to spend another few trillion dollars in the name of virus relief. …Mrs. Pelosi’s House bill promises another $3 trillion for her various constituencies on top of the $2.7 trillion or so Congress has already spent on the pandemic. The goal is income redistribution… This political strategy may work since Republicans, as usual, are divided and defensive. …Mr. Trump…seems torn about what to support and is thinking only as far as November. This is a recipe for another deal on Democratic terms… Sooner or later the pandemic will end. The question is what kind of economy will be left. A second Cares Act would leave a legacy of vastly larger government that would mean slower growth and take years to overcome.
Yes, the spending binge will mean slower growth.
But I’m even more worried about what will happen in the future. Here are three things to keep in mind.
Largely because of Bush, Obama, and Trump, the federal budget has tripled since 1980 (Reagan and Clinton were comparatively frugal). Keep in mind that the increase in the accompanying chart shows the growth in spending after adjusting for inflation.
The burden of federal spending is projected to skyrocket in future years because of the combination of demographic changes and poorly designed entitlement programs. In other words, our fiscal outlook is grimeven if politicians don’t approve an additional penny of new spending.
However, politicians are spending more money. A lot more. As shown in the accompanying chart, this has caused a huge spike in per-capita outlays. And the crowd in Washington wants to make the red portion much bigger.
Given all this bad news, does Thatcher’s warning about running out “of other people’s money” apply to the United States?
As bad as the numbers are, my two cents is that the U.S. won’t suffer a fiscal crisis anytime soon. As I noted at the end of this interview, Washington can probably continue with business-as-usual fiscal policy for several more decades (Adam Smith observed that it usually takes a lot of bad policy over a long period of time to cause economic ruin).
But that doesn’t mean it’s a good idea to travel down that path.
Here’s an analogy. Smoking three packs of cigarettes a day presumably won’t kill someone within the first 10 years, but it’s definitely not a recipe for long-run health and vitality. Sooner or later, there will be consequences.
A mature and sensible people (like the Swiss) take steps to avoid the fiscal version of those bad consequences.
For what it’s worth, similar reforms have been proposed for the United States. Unfortunately, too many American politicians and consumed by self-interest and don’t think past the next election.
For two simple reasons, I want Boris Johnson to win a clear majority tomorrow in the elections for the British Parliament.
He’s not a lunatic socialist, like Jeremy Corbyn, the leader of the Labour Party and the British version of Bernie Sanders.
He’s promised a real Brexit, meaning the U.K. escapes a doomed-to-decline, ever-more-dirigiste European Union.
Beyond that, his platform is not terribly exciting for supporters of limited government.
Which makes me all the more nostalgic for Margaret Thatcher, the only good British Prime Minister in my lifetime (just as Ronald Reagan was the only good President in my lifetime).
I can’t imagine Boris Johnson giving either speech.
Or making this statement.
Or giving these remarks.
As far as I know, Boris Johnson isn’t hostile to free markets and limited government.
He just doesn’t seem animated by a desire to shrink the public sector.
Thatcher, by contrast, was so sound on such issues that “Thatcherism” is now a term to describe good economic policy.
In a book review for City Journal, Alberto Mingardi celebrates Thatcherism.
Forty years on, Margaret Thatcher’s election as Great Britain’s first female prime minister still looks miraculous. …Right after World War II, Labour prime minister Clement Attlee, overly optimistic about the capacity of government to do great things, laid the foundations of the British welfare state. …The postwar economic consensus was so robust that it became known as Butskellism, since the policies of Rab Butler, the Conservative chancellor of the Exchequer from 1951 to 1955, and his Labour predecessor Hugh Gaitskell were indistinguishable. The glory days of interventionism didn’t last, however. By 1979, a third of the British workforce was employed by government, directly or indirectly, yet unemployment continued to rise throughout the 1970s. Inflation rose to double digits, exceeding 25 percent… Thatcher recognized the economic crisis as a failure of politics. She offered a gospel of government retrenchment and individual initiative that sounded outdated. She wanted to make people responsible again for their economic destinies, instead of entrusting their fates to state guidance. This meant denationalizing the British economy. Before Thatcher took office, “privatization” was a word out of science fiction; ten years after she left office, it was a global norm. She changed England and, by changing England, changed the world. …Thatcher aimed to stimulate self-reliance and independence, and she saw these virtues threatened by the culture of passivity that statism engenders. …the British political establishment always looked down on this shopkeeper’s daughter. And yet Thatcher’s defining quality, and the reason why we still speak of Thatcherism, is that she told people things that they didn’t want to hear.
And here are some excerpts about Thatcherism from a column by Roger Bootle for the U.K.-based Telegraph.
No previous British Prime Minister has had an ism named after them. …and if such an ism had been conjured up, it would surely not have been about economics. …“Thatcherism” was both substantial and essentially about political economy. …The main high intellectual influences, coming via Keith Joseph, were from Friedrich von Hayek and Milton Friedman. …Baroness Thatcher was ideological by nature. …When she first burst onto the stage it was a time for isms. Domestically, the 1970s had been a period of crisis. At various points, not just the economy but the whole system of democratic government in Britain seemed at the point of collapse. …Baroness Thatcher would have seen her ideological enemy then as “socialism”, which had brought the country low: excessive levels of government spending and taxation, lax financial discipline… Much of it was just the traditional liberal economic agenda, developed in the 19th century – free markets, free trade, competition, a small state, requiring only low levels of taxation, and financial probity. …Saying that this was just a retread of old 19th century liberalism doesn’t convey how radical these ideas were at the time, after decades in which markets were held under suspicion and even in a supposedly capitalist country like the UK, the state’s role in the economy was overwhelming. …there was more to Thatcherism than simply the liberal agenda. Classical liberalism was fleshed out with some more homespun beliefs – in value for money, efficiency, self-reliance, saving and wealth accumulation.
Warms my heart!
Speaking of which, I finally found some video of Margaret Thatcher’s famous line about socialists running out of other people’s money.
Shifting topics, nobody knows with total confidence whether Thatcher would have supported Brexit.
She was sympathetic to the original concept of Europe as a free-trade zone.
As you can see, there was a dramatic increase in economic liberty during the Thatcher years.
The scores from EFW, which only exist in every fifth year, don’t exactly coincide with Thatcher’s tenure, but the trend is unmistakable.
Conversations with British experts lead me to state that she had three amazing accomplishments.
Radical reductions in tax rates on income, with the top rate falling from 83 percent (98 percent for investment income) down to 40 percent. Unsurprisingly, the rich paid more tax with lower rates, just as happened when Reagan lower the top tax rate.
Ending capital controls, meaning that people actually had the freedom to take money out of the country (many supposed experts advised against this liberalization, much as so-called experts advised Erhardt not to remove price controls in post-WWII Germany).
Industry privatization, which meant undoing the pure socialist policies that resulted in the nationalization of major industries (gas, telecom, steel, coal, transport, etc) and gave government ownership and control over the means of production.
Her only notable bad policy is that she increased the value-added tax.
I also give Thatcher credit for a better-than-expected record on spending restraint (the same is true for David Cameron), and I also think she deserves praise from helping to bring inflation under control.
To be sure, this simplified assessment only skims the surface. And it doesn’t address “sins of omission,” such as her inability to pare back the the country’s creaky government-run health care system (though she did some incremental reforms, such as internal markets).
I got to meet Margaret Thatcher a couple of times and felt lucky each time that I was in the presence of someone who put her nation’s interests first and was not guided by political expediency.
Such a rare trait for someone in public life.
The best tribute I can offer is to share some of her remarks that capture both her strong principles and her effective communication skills.
And here’s her powerful performance in the House of Commons exposing the left for being willing to impoverish the poor if it meant those with higher incomes suffered even more.
The statists are making a big issue out of income inequality, hoping to convince ordinary Americans that redistribution is their only hope for a better life.
Simply stated, it doesn’t make sense – or help anybody – if inequality is reduced by policies that hurt everyone, but happen to hurt upper-income people more than lower-income people.
But I have to admit that Margaret Thatcher does a much better job of eviscerating the left’s agenda on this issue.
While it’s inspiring to watch Thatcher in action, it’s also painful to realize that the current crop of GOP presidential candidates seems generally incapable of making similar arguments. Can you imagine, for instance, Mitt Romney making these remarks?
Last but not least, Thatcher’s remarks remind me about Churchill’s famous quote, which is very appropriate for this discussion.
The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of misery.
Now here’s a speech by someone I wish could be President.
Margaret Thatcher saved the United Kingdom, just like Reagan saved America. Did anybody hear a candidate talk like either one of them during the last GOP debate?
Today, let’s focus on what happened in the United Kingdom.By the time Margaret Thatcher led the Tories into office in May 1979, inflation was raging and the country had been wracked by strikes in its “winter of discontent”… Lawson entered Thatcher’s administration… He made his historic mark as Chancellor of the Exchequer starting in 1983. He’s best known for his tax reforms, which reduced the top personal income-tax rate to 40% from 60% and brought the top corporate rate to 35% from a 1970s high of 52%. He also was a steward of the Thatcher administration’s privatizations of large state-owned firms and the “Big Bang” financial reforms that would transform London into a global financial center.
…During his tenure, Britain was transformed from being an economy in which most major businesses and services were owned and run by the state, into one in which they became private businesses, paying taxes instead of receiving taxpayer subsidies. Failing and outdated state enterprises became modern, successful private ones. …His 1988 Budget…announced that all taxes above 40% would be abolished, and that the basic rate would be cut to 25%, its lowest for 50 years… Within a very short time, more money was coming into the Treasury from the lower rates than it had been taking in from the higher ones. It was a vindication of the Laffer Curve. …The top 10% of earners had been paying 35% of the total income tax take. Under Lawson’s lower rate that went up to 48%. In rough terms this meant that the top 10% went from paying just over a third to just under a half of total income taxes.
International Liberty 