Monday 16 Jul 2018 | 13:01 | SYDNEY
Monday 16 Jul 2018 | 13:01 | SYDNEY

Reader riposte: Lessons from Thatcher

17 November 2011 15:57

Anton Kuruc writes:

The Hollywood version of Margret Thatcher seems to include plenty of artistic licence to paint Thatcher as someone she wasn't. Norman Tebbit, a former close Thatcher supporter, disagrees with the Streep portrayal of Thatcher:

"However, she was never, in my experience, the half-hysterical, over-emotional, over-acting woman portrayed by Meryl Streep...It was all about reality, not emotion, and she was no stranger to the game of hard ball. The Sinn Fein/IRA attempt to murder Margaret Thatcher and as many of her ministers as they could showed her at her best: no histrionics, just courage and determination, alongside real concern for the victims of the plot."

If Stephen Grenville is still looking for Krugman's confidence fairy that allows economic growth during austerity, then Margaret Thatcher is a good place to find it. When Thatcher cut government she really cut it, not the rounding-error-sized cuts favoured by contemporary fiscal hawks.

The graph below shows that Thatcher cut Government from almost 50% of GDP down to about 39% — that is slashing government by about a quarter (the red line). However, the thing to note is that this massive austerity drive barely affected tax receipts and government income (the blue line). I think the Laffer Curve adequately explains this apparent paradox. The second graph shows the affect austerity had on economic growth. Clearly Thatcher-level austerity can occur concurrently with strong economic growth.

Can anyone imagine any of the current crop of Euro leaders, or even so called fiscal hawk Republican Presidential candidates, doing this? No, nor can I.