Well before Margaret Thatcher became Prime Minister, it was known to any economist willing to agree that the earth was round that there were no new ideas in economics. There were no magic bullets available to cure economic ills, no miracle cures in the cupboard. So when the new Tory Government embraced monetary policy as the mainstay of its economic strategy, the lessons had already been learned.
The over-use of the monetary instrument had hobbled Richard Nixon in his battle with Jack Kennedy: it had earlier induced the post-1937 slump in the USA, and soon after Thatcher came to power, it did for Jimmy Carter. Over reliance on monetary policy works against those businesses that need to borrow to establish themselves and then expand, whereas larger firms can often finance growth from reserves, and have the clout to be able to secure finance when it may be otherwise scarce. Those such as Professor Milton Friedman, the greatest prophet of monetarism, did not trouble themselves with such trivia. They asserted that this was the way to cure the economy of inflation, although the UK economy inconveniently dissented by posting inflation rates that peaked at over 20% in 1981.
Also, the Thatcher Government moved to try and balance the books, despite the clear lesson from pre-war USA. The result was broadly similar: the economy slumped. Thatcher repeated her mantra of “world recession”, and no doubt some believed it. But much of the slump was deliberately induced. And the rounds of spending cuts brought more unemployment.
Meanwhile, scarce and more expensive finance – interest rates were jacked up to an eye watering 17% - meant increasing numbers of small and medium sized businesses went to the wall: the manufacturing sector contracted by 30% in the early Thatcher years. Thus there was yet more unemployment.
Contrary to the conventional wisdom that suggests entrepreneurship comes only from those with the highest incomes, most start-ups use borrowed money. If the entrepreneurs cannot secure backing, there is no entrepreneurship. One of the sources of new jobs in Thatcher’s Britain was being hobbled by her own policies, and therefore did not make significant inroads into the mounting total of unemployment.
By 1983, the economy was growing once more. Inflation had come down, but only just into single figures. And there were now well over three million unemployed. Before the 1979 Election, the Tories ran a poster campaign showing a queue of unemployed people, with the slogan “Labour isn’t working”. At that time, there were around a million unemployed. Thatcher tripled that, but there were no regrets. And still there were no new ideas in economics.
But propaganda could now offer the sickest of jokes.