Thatcher Proves Krugman Wrong

The British leader showed that there’s an alternative to Keynesianism.

Former British prime minister Margaret Thatcher arrives at Andrews Air Force Base, Maryland, June 11, 2004
Former British prime minister Margaret Thatcher arrives at Andrews Air Force Base, Maryland, June 11, 2004 (DoD/Sophia Piellusch)

It should come as little surprise that economist Paul Krugman continues to insist that government spend evermore borrowed money, in good Keynesian fashion. His latest New York Times column is no exception. The greatest threat to the recovery of the American economy, according to Krugman, is not a mounting debt that increasingly unnerves investors worldwide but the notion that it is time for policymakers to “stop helping the jobless and start inflicting pain.”

In Krugman’s warped interventionist mindset, ending “stimulus” measures equates “punishing the economy” and that, he believes, would mean disaster. “Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea,” he writes. Even the Organization for Economic Cooperation and Development gets it wrong when it recommends austerity.

Krugman’s argument may have been “textbook economics” during the 1960s but experience is not on his side. Besides the United States and Japan, countries throughout Europe plunged in the red in the wake of the recession and the results are undeniable: investors are fleeing countries like Ireland, Italy and Spain while Greece bordered on bankruptcy and had to be rescued by its fellow eurozone member states. Krugman pretends that’s irrelevant though. Greece didn’t collapse because it borrowed too much money, he says; it was all the fault of Europe’s “arrogant” elite which “pushed” countries into adopting the common currency way too soon.

Very well, let’s go back further, before the euro came into play. In the late 1970s the United Kingdom was mired in deep recession after several decades of socialist rule. Successive Labour governments had followed Keynes’ recipe almost to the letter but proved unable to generate economic growth. So when Margaret Thatcher came to power in 1979, she promised to slash the deficit and reduce the national debt. She raised interest rates to slow the growth of the money supply and tame inflation. Unemployment soared and opponents of the Conservatives voiced concerns similar to Krugman’s today.

In 1981, several Cambridge economists began to circulate a letter to their colleagues throughout Britain which condemned the policies of the Thatcher government as being likely to “deepen the depression, erode the industrial base of our economy and threaten its social and political stability.” By the time the letter was published in The Times, 364 economists from across Britain’s universities had signed it.

Thatcher persevered however. She broke the power of the unions and privatized old, unprofitable industries held in government ownership for many decades. By the end of her prime ministership, Britain was back on a path for growth. The eminent economists were proven wrong.

As during the 1980s in Britain, commentators on the left today complain that such supposedly heartless measures as once preached by Thatcher are lethal to the common man. As Krugman puts it, “conventional wisdom says that the responsible thing is to make the unemployed suffer.” Evidently, that’s how socialists still think of efforts that could truly stir a recovery: as attempts of the rich to make the poor poorer. Krugman would to well to abandon this marxist mindset for as Britain before Thatcher amply demonstrated, the sort of policy it leads to only leaves more people unemployed and impoverished.


  1. What was Paul Krugman’s POV regarding Thatcher’s action? This article among others I have seen today retroactively applies Krugman’s point of view to Thatcher’s actions in 1981. Can you please tell me what Mr. Krugman’s point of view was in 1981? Was Mr. Krugman one of those who signed the letter. Your careful wording gives the distinct impression that he did not. All I can surmise is that you believe Keynes should always be discarded in favor of cutting budgets and deficits becuase it worked for Thatcher in 1981. Oh wait, I just did what I am accusing you of….