Will Thatcherism Work In Solving Today’s Economic Problems?

Even though then UK Prime Minister Margaret Thatcher managed to (more or less) solve Britain’s economic problems during her tenure, can Thatcherism be used to solve today’s pressing economic problems? 

By: Ringo Bones 

Even though then UK Prime Minister Margaret Thatcher is still loathed by scores of Britons who had experienced first hand her privatization of previously nationally-owned utilities that virtually subjected most of Britain’s working middle class to abject poverty for much of the 1980s, there is a growing consensus among today’s leading economists that “Thatcherism” – also known as “Thatcherite Economics” - saved Britain’s then languishing economy by restructuring it from a virtual socialist type system to a free market system modeled after the U.S. economy. Economic rigmarole aside, can Thatcherism be used to solve today’s pressing economic problems currently plaguing the U.K. and the rest of the E.U.? 

Sadly, many leading economists these days seem to have reached a consensus that Then UK Prime Minister Thatcher’s economic policies that restructured Britain’s economy to a more free market driven one – and made scores of investors and hedge fund managers rich - during the 1980s were specifically designed to solve economic problems that the British economy incurred during the 1970s. For the benefit of everyone too young to have experienced first hand the economic landscape of the 1970s, here’s a brief “layout of the land” of what existed back then and why "Thatcherite Economics" manage to fix such intransigent economic debacle born out of the geopolitical turmoil for much of the 1970s. 

To the uninitiated, the 1970s are more than just “bad Disco music” bad clothes and high income and capital gains taxes, the 1970s were also notorious for the OPEC induced “oil price shocks”, rising wages for specialists jobs and labor unions drunk with power. Despite earning a relatively comfortable wage, Brits were paying an annual income tax 89 per cent higher compared to current rates. UK capital gains tax were also around 89 per cent higher back in the 1970s compared to current rates. Thus Thatcherism – with its “non-Keynesian” way of reducing both income and capital gains tax and drastically reducing budgets for public services – i.e. Reaganomics style “small government” – virtually allowed the UK economy to benefit from the go-go greed driven market economy of 1980s America. 

Unfortunately, Thatcherism would be woefully ineffective in solving our current global economic sluggishness because problems that caused them today are radically different in comparison that caused the economic sluggishness of the 1970s. Today, the emerging economics – i.e. BRICS nations as in Brazil, Russia, India, Mainland China and South Africa sometimes referred to as emerging economies – had been producing more highly educated college graduates during the past few years that they are the primary driving force behind the outsourcing phenomena. Why hire an American when a job can be done online by a college graduate in India for one-fifth of the cost? American jobs being outsourced to low-wage countries only started near the very tail end of both Reagan’s and Thatcher’s tenures. 

Thatcher style austerity measures would spell disaster today and even a watered-down version of it is being used currently to solve the British government’s ballooning budget deficit is causing a gradual – and eventually disastrous – economic slowdown on the British economy. Better resort to Keynesian Economics style quantitative easing at the risk of increased inflation rather than risk a disastrous double-dip recession.  

QE-3: A 21st Century “New Deal”?

Recently given the green light by FED Chairman Ben Bernanke, will QE-3 – or Quantitative Easing part 3 finally trigger a healthy American economic recovery?

By: Ringo Bones

With a slated budget of 40 billion US dollars a month, the latest QE-3 or Quantitative Easing part 3 recently given the green light by US Federal Reserve Chairman Ben Bernanke is now seen as the 21^st Century equivalent of the Great Depression era New Deal that could finally trigger a healthy American economic recovery and create much needed jobs. Unfortunately, the US Republican Party, who are still obsessed with their obstructionist policies who collectively voted to kill-off President Obama’s latest job stimulus bill, sees such “unconventional” or Keynesian style economic bailout as nothing more than a mere “ploy” to get President Obama reelected. But is there really a “dark side” to large-scale “money from nothing” quantitative easing?

Even though the previous two quantitative easing programs are not as ambitious as the new one, one of the Obama administration’s success stories is now the renewed economic health of the insurance firm AIG – which a few years ago was seen as an “economic black hole” insatiably devouring stimulus money. Proof that Keynesian Economics still works – as opposed to fiscal austerity? The 40 billion US dollar a month QE-3 is primarily aimed at purchasing “bad mortgages” that triggered America’s economic crisis in the first place during the tenure of George W. Bush. Unfortunately, prolonged quantitative easing for the purpose of economic stimulus could further trigger inflationary pressures and could further devalue the US dollar and it is still uncertain whether the latest round of this “money from nothing” quantitative easing could finally lower the unemployment rate in the United States from the 8% mark.