John Quiggin on the Failure of Thatcher’s New Classical Economics

Very many Libertarians describe themselves as ‘classical liberals’, meaning they support the theories of the classical economists of the late eighteenth and nineteenth centuries. This rejects state intervention and the welfare state in favour of free markets and privatization. This theory was the basis of Thatcher’s economic policy before the Falklands War, as well as those of other countries like Australia and New Zealand. In all of these countries where it was adopted it was a massive failure, like trickle-down economics and austerity.

Quiggin describes how Thatcher’s New Classical Economic policy was a failure, but she was saved from electoral defeat, partly by the Falkland War on page 113. He writes

The only requirement for the New Classical prescription to work was the credibility of the government’s commitment. Thatcher had credible commitment in bucketloads: indeed, even more than an ideological commitment to free-market ideas, credible commitment was the defining feature of her approach to politics. Aphorisms like “the lady’s not for turning” and “there is no alternative” (which produced the acronymic nickname TINA) were characteristics of Thatcher’s “conviction” politics. The slogan “No U-turns” could be regarded as independent of the particular direction in which she was driving. In a real sense, Thatcher’s ultimate political commitment was to commitment itself.

So, if New Classical economics was ever going to work it should have done so in Thatcher’s Britain. In fact, however, unemployment rose sharply, reaching 3 million and remained high for years, just as both Keynesians and monetarists expected. New Classical economics, having failed its first big policy test, dropped out of sight, reviving only in opposition to the stimulus proposals of the Obama administration.

However, Thatcher did not pay a political price for this policy failure, either at the time of (the Falklands war diverted attention from the economy) or, so far in retrospective assessments. The only alternative to the “short sharp Shock” was a long, grinding process of reducing inflation rates slowly through years of restrictive fiscal and monetary policy. While it can be argued that the resulting social and economic costs would have been significantly lower, political perceptions were very different. The mass unemployment of Thatcher’s early years was either blamed directly on her predecessors or seen as the necessary price of reversing chronic decline.

New Classical Economics was a colossal failure. In fact Thatcherism, whether implemented by the Tories or New Labour, has been a failure, though New Labour was better at managing the economy than the Tories. The only reason it has not been abandoned is because of the charisma surrounding Thatcher herself and the fact that it gives even more wealth and power to the upper classes and the business elite while keeping working people poor and unable to resist the exploitative demands of their employers. And its given a spurious credibility to ordinary people through its promotion by the media.

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5 Responses to “John Quiggin on the Failure of Thatcher’s New Classical Economics”

  1. George Berger Says:

    You might like John Quiggin’s new economics textbook. It is quite different from standard ones. I have a usable drafr and am excited.

  2. Michelle Says:

    Hi Beastie,

    Digging into the history, flaws and exclusive so-called ‘science’ of classical and its steroid version neoliberal economics is Kate Raworths’ brilliant book ‘Doughnut Economics – Seven ways to think like a 21-st Century Economist’

    Also to an interesting discussion on Kate’s website: https://www.urbanandeden.com/blog/skyline-has-been-pierced

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