Today I will write in honor of Margret Thatcher who passed away yesterday morning. She left a lasting impression on the world, which will never be forgotten. Here is a bit of background about her and the lessons she left behind.
· Became leader of conservative party in 1975
· Privatization was not in the agenda when she took office, it came after
· “Thatcher’s election could be viewed as a reaction to the failures of the Health government of 1970-4”.
· End of post-war boom in the early 1970s triggered a combination of economic difficulties- rising unemployment and rapid inflation, an unforeseeable mix.
· At the time Keynesian ideologies directed economic policy- creation, but based on Keynesianism, there was supposed to be an inverse relationship between unemployment and inflation (Phillips Curve). The inability to explain these economic conditions led to increased skepticism against its ideologies and in search of an economic agenda that could promote growth and restart England’s ailing economy.
· Thus Thatcherism could be viewed as a product of England’s depressed economy of the early 1970s. Her ideas brought a new wave of invigorating and controversial policies to the table, while making it possible for the re-introduction of liberal-market and monetarist economics.
· As they took power, Thatcher and her administration were on a mission to “roll back the frontiers of the State”. For this to possible, Britain’s economy would have to become less reliant on the government. This would be done by promoting an policies that favored a market economy dominated by the private- sector, with little to no emphasis on State involvement.
· The agenda set to reduce the welfare state by reducing taxes to encourage ownership and consumption. Welfare supporters such as trade unions lost a lot of power due to legal restrictions, which helped re-established a motto of self -empowerment and personal accountability.
· These policies and reforms were all enacted with a central economic objective in mind, and that was to focus on keeping inflation low, rather than controlling the level of unemployment.
· Thatcher’s overarching theme during her time in office was to bring prosperity and growth back into the British economy, by disassembling the institutions, removing state interference and by enabling individuals to promote their own interests- which intern would promote the interest of society.
· Thatcher grew up watching her father run a grocery store and in 1930s, during the great depression she encountered a perspective very different from her counterparts during that era. She saw, at the simplest level, how capitalist or a “free enterprise system” could and should function. Others, without this observed knowledge and perspective were convinced that the alleged failure stemmed from the flawed nature of capitalism.
· Putting her childhood intuition to work, her macroeconomic policies included, but were not limited to, the following: controlling the money supply and increasing accountability by making target figures public, incremental reduction of government deficit, eliminating price controls, limit government expenditures and reduce income taxes.
· Her ruthless execution of, what we would call monetarism, embodied a platform much different from the one in removed, one burdened by a powerful and expanding government sector, high and interest rates and an over exhausted welfare- socialist like platform.
· I would now like to expand on several aspects of Thatcher’s economic policies:
· 1. The Conduct of Monetary Policy: In March 1980 Green Paper, Monetary Control, presents the official view of how monetary policy was to operate in Britain. The first five main instruments of monetary control included “fiscal policy, debt management, administered changes in short-term interest rates, direct controls on the financial system and operations in the foreign exchange market.” The two monetary authorities that were to oversee the execution and overall implementation of economic policy were the Bank of England and the U.K. Treasury. Prior to Thatcher’s arrival the problem existed in controlling or influencing various assets, of which make up a part of the money supply. The issue was an over supply of credit in the market, which created undesirable externalities and unsustainable growth in the post war period. In the early 1970s the Bank of England was looking to control commercial bank assets through manipulation of interest rates, implementation of exchange controls and through some direct controls over bank lending. Thatcher’s administration removed exchange controls and some bank lending regulation in hopes of depreciation of the sterling. Interest rates were to benefit by bringing supply and demand of credit back into focus. Over the course of many years of trial and error, Thatcher and her administration did witness the comeback of the British economy. Through promoting low inflation, minimal state intervention, free enterprise, tight control of the money supply, privatization and the restriction of union power.
· Thatcher proved those that challenged her authority and judgment wrong. She was a controversial and impactful leader that remained committed to the principals, which led her to become a very important figure in history that will never be forgotten.