Paul Krugman on Thatcher

It was not surprising.

Now, there is no question that Britain did turn around. In the 1970s it was a country with huge economic problems; today, despite the failure of austerity policies, it’s in a much stronger position. There are various ways you could show this; I find it useful to compare Britain with its love-hate-relationship neighbor France.

And he presents real GDP per capita in the UK relative to France since 1950, followed by a comparison of unemployment rates and then does his ‘thing’:

So, a real turnaround. Was it the Iron Lady wot did it?

Well, there’s a bit of a problem: Thatcher came to power in 1979, and imposed a radical change in policy almost immediately. But the big improvement in British performance doesn’t really show in the data until the mid-1990s. Does she get credit for a reward so long delayed?

This is, by the way, somewhat like a similar issue in America: right-wingers were eager to give Ronald Reagan credit for the productivity boom of the Clinton years, which also didn’t start until around 1995; if Reagan could get credit for events that were 14 years or more after his 1981 tax cut, shouldn’t Richard Nixon be given credit for anything good that happened in the Reagan years?

David Glasner has a much, much better take:

Margaret Thatcher was a great lady, and a great political leader, reversing, by the strength of her character, a ruinous cycle of increasing state control of the British economy imposed in semi-collaboration with the British trade unions. That achievement required not just a change of policy, but a change in the way that the British people thought about the role of the state in organizing and directing economic activity. Mrs. Thatcher’s greatest achievement was not to change this or that policy, but to change the thinking of her countrymen. Leaders who can get others to change their thinking in fundamental ways rarely do so by being subtle; Mrs. Thatcher was not subtle.

Let me take the UK-France comparison a bit further. Krugman starts of in 1950 showing France´s relative gain. But even in his chart we see that after Maggie came to power the trend reversal was immediate. What Krugman forgets to mention is an implication of the standard Solow growth model, to wit, that if a country for some reason (in France´s case WWII) sees its capital stock pretty well destroyed, it´s going to have a high growth period to return to its ‘steady-state’. The chart below shows this clearly, noting that the UK kept its capital stock, which was old in comparison to France´s ‘new machines’.

Maggie_1

The next chart shows that when Thatcher came to power the UK growth trend picks up and the UK goes on to surpass France. So yes, Thatcher´s changes brought on a quick turnaround.

Maggie_2

Krugman zeroes in on the unemployment rate, but given that the ‘battle’ was with trade unions, it is to be expected that the labor market would go through a period of turmoil. But note in the chart below that following the initial recession the labor force participation rate rapidly rises and stays high all through her premiership.

Maggie_3

 

6 thoughts on “Paul Krugman on Thatcher

  1. Great post. It reminds of when we used to holiday in Europe in the late 70s and early 80s. they seemed so rich compared with the UK. What’s also funny about the chart of RGDP is that there is a discernible dip in the early 1990s in the UK trend which is due to the Major recession due to the shadowing of the DM. a policy which Thatcher was seriously opposed it. Otherwise the UK would have caught up with France even earlier. Still an ill wind and so on, I was able to buy my house in Bayswater for a song as a result.

    • chrisA. If you go back to the early 60s, they seemed even richer. And I remember, as a kid having to leave a deposit for my movie camera on entering the UK (returned on my leave if I showed I still had it with me!)

  2. Off the top of my head, France went to a 39 hour workweek in 1980, which would probably skew the per capita GDP numbers. I can’t do research right now, but I’m betting there’s all kinds of stuff that this … selective recitation of data doesn’t capture. There are few miracle workers in history, and before I’m convinced that someone as crude and blundering as Mrs. Thatcher is one, I want to see something more than a few cherry picked data points. If we’re going to make the woman some kind of saint, let’s do a thorough job of investigating her miracles, shall we? The legacy of people like her and Reagan have been used to justify an awful lot of bad policy making; as such, those legacies ought to be scrutinized more than this.

    • mg. If France went on a 39 hr workweek, that´s policy (and maybe a bad one). Later they forced down everyone´s throat a 35 hr workweek (to reduce unemployment!). That was certainly a bad move. MT is not a saint, surely, and I´m not arguing she performed miracles either. And I certainly ‘cherry picked’ data much less than Krugman.

      • Whether it’s a “bad” policy or not is A) debatable; but B) and more importantly, highlights the problem with pointing to GDP per capita as a sign of how successful her policies were, which is what you did. You are using the measure as an absolute measure of success or failure; in reality, it’s just one in a very large basket of measurements that ought to be used to measure the well being of an economy, let alone society at large — and you should already know this. Thus, cherry picking. Another thought that popped into my head was that the UK became a net oil exporter in 1980, which had nothing to do with Mrs. Thatcher’s policies. Of the two of you, I’d say your cherry picking is far more egregious than Krugman’s, because the data you chose to present are influenced by so many variables that were in motion at exactly the time period you cite.

        As for “miracles,” and the sanctity of Mrs. Thatcher, I will simply suggest that you, and your readers, re-read the paragraph of David Glasner’s that you chose to cite and praise, and draw your own conclusions.

  3. mg, you were the one that introduced ‘saint’ and ‘miracles’ in the discussion! I agree that GDP per capita is not all, but it´s the popular ‘short-hand’ metric, that even PK uses. And I still find Glasners ‘summary’ pretty good.

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