Taking a look back at Britain under Margaret Thatcher may help redirect the policy winds back into directions long ago abandoned. Read on.
Current policy in the U.K. and other countries tracks in the opposite direction. Last week’s Truss/Kwarteng budget cut taxes instead of raising them, and plotted an increase in spending that would send the U.K.So which policy is right: Cut taxes, increase spending and let the deficit grow to stimulate the economy and force looser monetary policy? Or follow Thatcherism: Raise taxes, cut the deficit, control government debt and cut money supply.
As Congdon notes, paying interest on debt serves “hardly any useful purpose.” It requires more taxation and “merely redistributes between taxpayers and bondholders, and the taxation needed to pay for it has the same disincentive and distortive effects as taxation in general.” The tax cuts in one year expand the future size of the state and increase future government spending.Article content
Is Congdon right or were the 364 economists who trashed Thatcherism correct? One of the professors who launched the 364 petition, Robert Neild — in a chapter in Expansionary Fiscal Contraction — offered a limited apology in 2014. “I now see that monetarism, despite its fallaciousness, served a useful purpose: it provided a veil for the severe deflation that was needed to stop the inflationary spiral.” Later, he adds: “I now give her credit.
More could be said, but this column has gone as far as it can without armoured-tank protection onto the battlegrounds of The 40-Year War over the benefits of Thatcherism.
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