Mrs Thatcher's Economic Policies 1979-1987

Abstract

Mrs Thatcher's Economic Policies 1979—87 Kent Matthews and Patrick Minford Mrs Thatcher inherited a weak economy whose poor performance she attributed to policies of cosy consensus, lax discipline, high inflation, and pervasive inefficiency. These she sought to banish forever. The authors stress the astuteness with which this radical programme was pursued. Rather than launching an immediate and grand assault on all fronts, Mrs Thatcher picked off enemies one by one, each victory consolidating her position for the next attack. Only when inflation was clearly under control could more radical supply-side measures be introduced. Matthews and Minford argue that the recession of 1980–81 was caused not by tight domestic demand but by external and supply-side shocks. Subsequently, tight monetary and fiscal policy did have powerful effects, both in achieving rapid inflation reduction and in holding unemployment above its equilibrium level. Once serious supply-side policies were introduced, they had a significant effect on productivity growth and on the equilibrium rate of unemployment. Matthews and Minford conclude that the latter was halved between 1981 and 1986, by which date it stood at 1.6 million or roughly half of actual unemployment. Whilst unemployment may slowly fall towards its equilibrium level, the authors do not recommend fiscal or monetary expansion to accelerate this adjustment; rather they advocate further supply-side measures and deregulation to help markets achieve this transition.