The Crumbling Case for Austerity Economics

The gods have a dark sense of humor, it would seem. Just as Mrs. Thatcher, the great hero of conservative economics is being laid to rest, the arguments for the austerity policies that she championed are crumbling before our eyes.

Back in 1979, Mrs. Thatcher resurrected the dogma of budget cutting and deficit reduction from the history books to which it had been consigned during the Great Depression. Adopting a “medium-term financial strategy” that slashed spending by more than ten per cent in real terms, and which envisaged the budget deficit falling by four per cent of G.D.P. in just five years, she ignored warnings that such a strategy would plunge the U.K. economy into a deep recession, which it did. Despite soaring unemployment and a stubbornly high deficit, she refused to admit that her policies had backfired, famously remarking, in 1981, “the lady’s not for turning.”

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