Reaganomics, Thatcherism & 1980s Economics

Reaganomics, Thatcherism & 1980s Economics
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  • 0:04 Thatcherism
  • 3:04 Reaganomics
  • 6:11 Lesson Summary
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Lesson Transcript
Instructor: Alexandra Lutz

Alexandra has taught students at every age level from pre-school through adult. She has a BSEd in English Education.

In 1979, Conservative Prime Minister Margaret Thatcher came to power in the U.K., introducing economic 'Thatcherism' to solve her nation's financial problems. Then, in 1981, Republican President Ronald Reagan and his 'Reaganomics' took power in the U.S.

Thatcherism

Prime Minister Margaret Thatcher; President Ronald Reagan - romanticized as heroes by conservatives who long for a return to their policies, villainized by liberals who struggle to explain why they don't actually deserve credit for economic gains in their wake, and questioned by many others who just don't get what the fuss is all about. In this lesson, we can't analyze the complex economic factors, but we can summarize the basic economic policies of these two politicians and their short-term results.

Margaret Thatcher was elected leader of Britain's Conservative Party in 1975, a time of political instability in England, with historically high government debt, unemployment, and inflation. This economic turmoil ushered in a Conservative-controlled Parliament in 1979. As party leader, Thatcher became Britain's first female prime minister, a position she held until 1990. Thatcherism describes the prime minister's political ideas of free markets and a small central government restricted to very few tasks, such as defending the nation and its currency. When Thatcher explained her policies, she said she was running the nation like a thrifty housewife.

Thatcher battled inflation through an economic principle known as monetarism. In short, she raised interest rates, which tightened the money supply. She also cut income taxes for all earners. The highest bracket fell by more than half to 40%, while the basic rate dropped to just 25%. She countered this drop in government revenue with measures such as an increase in sales taxes and a decrease in government spending.

Prime Minister Thatcher was also known for her pro-business philosophies. England had planned and controlled many industries since World War II (WWII), but Thatcher felt it was time to privatize certain sectors. For example, she turned over British Telecom and British Airways, public utilities, housing, and transportation to private hands. Her pro-business attitude also put her in conflict with labor unions, which she believed were hindering the nation's economic progress.

The immediate, short-term effect of Prime Minister Thatcher's policies was increased unemployment. But soon, the U.K. experienced modest growth in GDP, significant increases in home ownership, and overall higher wages during her time in office. However, income disparity widened. And while she oversaw a steep decline in industry and the near-death of Britain's coal mining, industry was falling in other Western nations at the same time, and coal mining had lost many more jobs in the decades before she came to power.

Reaganomics

One of the world's most devoted supporters of Thatcherism was United States President Ronald Reagan, who shared many of her philosophies. Like Thatcher, President Reagan took office at a time of financial crisis in his country. A deep recession gripped the United States in 1981, with double-digit unemployment, poverty rates, and inflation, alongside already sky-high interest rates, falling incomes, and a crumbling stock market. And, just like in England, Americans responded by electing a different party to power.

Reagan's philosophy was summed up simply when he said, 'Only by reducing the growth of government can we increase the growth of the economy.' While he was still campaigning, he articulated his economic plan, dubbed Reaganomics by the media: cut taxes, reduce spending in all areas except defense, curb inflation, and deregulate business.

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