Thatcher, and the Beauty of Smaller Government

This week a legend in British Politics passed away. Margaret Thatcher died on April 8th from a stroke after a long decline in health that limited her public appearances in the last years of her life. Perhaps second only to Winston Churchill in modern British Politics, Mrs. Thatcher's influence and impact is unquestionable. She took office in 1979, during a time of great political unrest in Britain. Unions had taken over, the top tax rate was a confiscatory 83%, inflation had reached double digits, public expenditures were 42% of British GDP and the British government accounted for 30% of the work force. The previous two Labour governments lead By Messrs. Heath and Wilson had tipped political power so far towards the unions that the popular consensus of the time was that Britain was ungovernable.

To right the proverbial sinking ship, Mrs. Thatcher took on the unions, lowered taxes (from the above mentioned 83% to 40%), privatized loss leading government run industries and tightly controlled the monetary supply to battle inflation. Her actions likely saved Britain from bankruptcy, and certainly turned the economy around. Under her care, Britain moved from being the 6th largest world economy to 4th largest; and this during a time when most economies were expanding (in most cases, because they followed a similar small government approach).

While this is interesting from a historical perspective, it serves as a good example and a good reminder to current world governments that the path to economic expansion is well known. We may live in different times than Mrs. Thatcher governed, but there are certain undeniable parallels. First, governments have expanded markedly, so has government debt, and the entire banking system has become a ward of the various states. Unions' pay packages, benefits and pensions have grown beyond what most Americans earn in the free market. More over, those pensions are beginning to bankrupt state governments (at least here in America). Instead of raising taxes, we have resorted to deficit spending and printing money to finance the excesses of our governments. This has lead us to a period of persistent unemployment, the lowest labor participation rate since 1979 (the year Mrs. Thatcher took office) and high levels of underemployment. Meanwhile current governments are flailing around unable, or unwilling, to do what is needed to right the ship.

The modern era could well use a Margaret Thatcher. We need a charismatic leader to step in, be the adult in the room, and give our economies and politics the medicine they need. We need someone to take on the public employee unions that are bankrupting us and draining money away from infrastructure projects that would better grow our economy in the long run. We need someone to take on the tax and spend cultures that have invaded the modern first world. Someone to come in and let the citizens keep more of their paychecks to stimulate the economy with. We need someone to instill tighter fiscal policies on our various central banks so that we stop debasing our currencies and penalizing savers. We need someone to privatize the banking system again, cutting off access to the central banks' borrowing windows to investment firms (reinacting Glass-Steagall here in the US would be a good way to do this, ditto ending too big to fail). In short, we could use a dose of Thatcherism in the modern era.

Here is a clip of the Iron Lady lambasting Labour for harping on a wage gap while ignoring the increase in welfare of the poorest members of Britain.

http://youtu.be/okHGCz6xxiw

Here is a bonus quote from the Iron Lady on the profligacy of Socialist governments: "Socialist governments traditionally do make a financial mess. They always run out of other people's money."