David R. Henderson  

Margaret Thatcher's Legacy

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I've held off commenting on Margaret Thatcher because I didn't know her legacy as well as many did. In 2011, Bruce Bartlett pointed out that she did not succeed in reducing government spending or government revenue as a percent of GDP. She did have other accomplishments, though. One was bringing down the top marginal tax rates over time from 98 percent on "unearned income" (interest, dividends, etc.) and 83 percent on "earned income" (wages and salaries) to 40 percent. That's a huge accomplishment. So why didn't revenues fall as a % of GDP? Because, as Bartlett points out, she did this by substantially raising the VAT. I oppose this second move but I do think that for a given amount of revenue, it's extremely unfair--and I know it's extremely inefficient--to single out high-income people so brutally. I'm convinced that that's why George Harrison of The Beatles wrote the song, "The Taxman" in 1966. The Beatles' big "earned income" started in 1964 and so by 1965 they would have been earning income [I refuse to use the term "unearning"]--interest and dividends--on this income. Thus his line "one for you [the taxpayer], nineteen for me [the taxman]". That implies a marginal rate of 95%. Apparently that was the rate at the time under Labor Prime Minister Harold Wilson.

One other huge positive about Maggie: the way she took on the unions in the late 1970s and early 1980s. I have friends who grew up in Britain and remember that in the 1970s, when the unions called strikes, they had their garbage pile up, got electric power only 3 days a week, etc. She changed all this for the better.

Also David Boaz of the Cato Institute sent me a link to this interesting article, not long, on some other positive, somewhat unintended, aspects of her legacy. A highlight:

So this has been an era of remarkable liberty and opportunity. Protectionism of all kinds has been assaulted. Britain's "immigration problem" (sic) is another consequence of Margaret Thatcher's success. That she was no great champion of immigration (to put it mildly) matters little; the logic of immigration is at least in part drawn from the success of her economic views. [The (sic) is the author's, not mine, but I agree with it.]

If capital should be free to move (on both a corporate and a personal level; young people may be astonished to discover that prior to Thatcher's arrival Britons could not take more than £500 out of the country when they went abroad) so should people.

Tearing down the Berlin Wall and lifting the Iron Curtain was a great victory for western liberalism. So too was expanding EU membership, bringing the countries of eastern europe in from the cold. And this too represented a remarkable expansion of liberty. The Poles and the Czechs valued Margaret Thatcher's trenchant opposition to Sovietism; they have also valued the opportunities afforded by liberalism.

The creation, still incomplete admittedly, of a more-or-less single european market in both goods and labour has worked wonders. Again, liberalism has prevailed and the Poles working in Britain are a part of Margaret Thatcher's legacy too.

Note: The photo was taken in the House of Lords in London. Maggie Thatcher gave a short speech to the assembled group--attendees at the Mont Pelerin Society general meeting in 2002. The woman standing beside me is Manual Ayau's wife, Olga. I don't remember the content of the speech other than that it was about freedom, but here's what I do remember. She was asked to speak for no more than 5 minutes and she had prepared a coherent 5-minute speech. She didn't fall prey to the idea that many U.S. politicians have that, since it's a short speech, they can wing it, and they turn 5 minutes into 10 minutes of incoherent ramblings. A number of us commented on that afterwards.

COMMENTS (10 to date)
Pierre Lemieux writes:

I would suggest that another aspect of her legacy should be analyzed. Like all conservatives, she seemed to be a blind fan of "law and order," and she probably significantly increased the power of Leviathan (with her Public Order Act among other things). She may have recoiled in horror from what subsequent governments did with these powers, but this naïveté does not excuse her.

David R. Henderson writes:

@Pierre Lemieux,
Good point. This is another reason I've held off. I can do a balanced assessment of Reagan because I followed his policies virtually daily for 8 years. Not so with Maggie. I also didn't mention the war with Argentina. I am very mixed about it.

txslr writes:

I was in graduate school in Britain early in Thatcher’s turn as PM and the decline was palpable. Unions were holding the entire country hostage. In a class we discussed the state of the automobile industry in which (as I recall) 13 separate unions worked on annual agreements. So each automobile company was in continual crisis as they renegotiated contracts with unions who would all on strike in support of any of the others that couldn’t get the deal they wanted. There was a news story at the time of an auto worker who, being a communist, was sabotaging the cars as they came off of the assembly line in order to strike a blow for justice. He was fired, but his union went on strike to have him reinstated, shutting down the factory.

Under the system as it was the fact that anything at all was produced was something of a miracle.

Carl writes:

You mean "Taxman", right?

This photo is great, it gives the impression that everyone is there to see Mr Henderson, not Maggie.

Jim Rose writes:

what did Thatcher actually do?

But by discrediting socialism so thoroughly, she prompted in due course the adoption by the Labour Party of free market economics, and so, as she wryly confessed in later years, “helped to make it electable”.

from http://www.telegraph.co.uk/news/politics/margaret-thatcher/8093845/Margaret-Thatcher-obituary.html

But what did she do? she stopped taxes and spending growing further as a share of GDP.

The post-1980 economic and fiscal reforms are an example of a political system converging onto more efficient modes of income redistributions as demanded by the middle-of-the-road voter as the deadweight losses of taxes and regulation grew.

Improvements in the efficiency of taxes, regulation and spending reduce political pressure to suppress the growth of government. this increased or prevented cuts to both total tax revenue and spending.

The post-1980 reforms by Thatcher saved the welfare state. Economic regulation lessened after 1980 but social regulation grew unabated.

But as pointed out in the Guardian, a past with no thatcher would have been nationalisation, unilateral nuclear disarmament and state-run pubs; waiting six months for a new mobile telephone (applications would be made at the post office), three TV channels and needing a department of trade and industry licence before you could use the internet.

JFA writes:

Couldn't another reason that tax revenues went up as a percentage of GDP (while maybe partially due to an increase in the VAT) be due to movement along the Laffer Curve?

David Henderson Author Profile Page writes:

I don't think so. It's a longer answer than I have time for now, but I'll try to get to it as a separate blog post later today or tomorrow.

Ken B writes:

The day before Argentina invaded the Falklands I remember left wing friends railing about the junta. But when Thatcher decided that the invasion would be resisted by any means these same friends leapt to the defense of that same junta. The enemy of union power was it turned out the real enemy. I was young enough and naive enough to be shocked. Perhaps no event in my life has affected my political views so strongly. There are very few western politicians I actually admire; Thatcher was first among them.

Jim Rose writes:

The Left has a double standard on thatcher and dictators.

She fought a war against one to stop british subjects been left to his mercy.

The Left instead took that dictator’s side because of the sinking of a warship whose compass was at the time was facing north (as part of a pincer movement) and, as usual, because they take the side of anyone attacking a liberal democracy.

The Left instead goes on about Pinochet. Thatcher was repaying Him for vital intelligence and other help in the Falklands War. Realpolitik.

Shane L writes:

One concern I have is this:

Thatcher talked a lot about economic liberty, identifying herself as an economic liberal, yet did not succeed in some of her economic goals. The state didn't get smaller, the UK suffered very high unemployment for much of her regime, crime rates rose, etc. I wonder if economic liberalism was totally discredited in the eyes of some British people because of this difficult experience. Had a political leader identifying as an economic liberal ruled over a less traumatic and fuller transition then maybe fewer people today would be celebrating her death.

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