Tuesday, 9 November 2010

The Reagan Thatcher Axis of Idiocy

Thatcher and Reagan hobbled their Economy.

Both the leaders favoured similar economic policies. In both, progress stopped: the state's Debt rose or assets fell.

red = left wing Labour Party, blue = right wing Conservative Party.

United States America debt % GDP

Both nations had recovered well from world war 2. And both nations experienced an end to progress in the early 1980's. Unlike the United States, Britain had a stronger socialist tradition with a very left wing labour party which had pursued decades of asset acquisition prior to Thatchers emergence. 

So when Thatcher pursued the Reagan like wreckenomics of tax cuts based on the assumption that the economy is one wrong side of the Laffer Curve. Thatcher was able to buffer fiscal stance with the wreckless fire sale of British state owned assets, the bonus of North Sea oil and the continued huge tax revenue from Hong Kong.

But with misplaced confidence in their ideology - that by reducing taxes, by deregulating, they would increase GDP and therefore tax revenue in the future, both leaders increased the national debt or reduced the national assets to finance this fairyland economics. 

Do taxes actually affect economic growth (nyt commentary)? The approach didn't really work in UK or USA.

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