Thursday, 11 April 2013

Graph of the week: Thatcher's economic legacy

Following the death of Margaret Thatcher, her legacy still remains a controversial issue for some. However, the data on the economic recovery of the British economy during her tenure are relentless - they point out to declining unemployment (after an initial necessary spike in order to allow the economy to restructure), falling inflation, lower government spending, lower tax rates, a balanced budget by the end of the tenure, falling debt-to-GDP by the end of the tenure, rising disposable income, rising productivity, and high levels of GDP per capita growth. Her reforms enabled a new sustainable growth model for the UK which kept their economy rising steadily for quite some time. Privatization of inefficient state industries, the fight against vested interest and oligopolies (both in the financial industry and among the unions), the Big Bang of 1986, opening up the country to new competition, and a whole range of other industrial, regulatory and legal reforms all led to the modernization of Britain and made it restore its former glory in the years that followed. It is through those achievements that her legacy should be observed.

The graphs below confirm this to a certain extent, even though her transition of the British economy should be observed from several dimensions, not just through crude numbers. On that perspective, I recommend Nicholas Crafts Vox EU column as a sort of an economic obituary of Lady Thatcher. 

Source: The Economist
Source: The Economist

3 comments:

  1. No one talks about that unemployment rate in '75, also a Guardian article I read yesterday said that more miners lost their jobs during the 70s than 80s. It is interesting how "big" events make people "sympathetic". Same in Croatia - everyone cries over few hundred jobs in some worker/government owned factory but no one is talking about tens of thousands of (individual) lost jobs in private sector particularly SME economy. I know it is not exactly economics, but if you have any insights (papers, recommendations) on effects of these kind of "tragedies" from public choice perspective, id love to read some.
    Also, after that data on unemployment and inflation, one wonders why there are still people believing in the long term tradeoff, especially if you have a structural problems, which was clearly case at the end of 70s and "winter of discontent"

    Greets

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    1. that's true, the unemployment rate and the union strikes were much worse during Wilson's Labour government in the 70ies. This was a pure example of too high union power who were demanding with violence to get what they want (even from their own party). And let's not forget this wasn't how the majority of union members felt, this is how their marxist leadership felt, which was forcing people into strikes. This needed to be fixed and the Thatcher government did that later on. They didn't destroy the unions, they democratized and civilized them. And who is to say British workers are worse off because of that?

      As for the specific papers, I can't think of any at the moment, even though it's a very interesting topic. Try NBER's working papers, they might have something there. Or CEPR. Or on VoxEU perhaps..

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