Monetarism Flashcards
What is monetarism?
-economic theory promoted by Milton Friedman
-argued best way control inflation by restraint of gov spending + borrowing and strict curbs on money supply
What was the state of the economy by 1980?
-plunged unto serous recession
-hit by inflation above 15% + rising unemployment above 2m
What did the public expect the gov to do?
-reverse its policy — U-turn
-inspired Thatcher speech - ‘you turn if you want to - the lady’s not for turining’
What did the gov do instead of a u-turn?
-1981 budget applied further monetarist measures
-gov borrowing went down + grants to local councils were cut + benefits frozen
What did people call this budget?
-gov econ advisor called it ‘biggest fiscal squeeze of peacetime’
-Howe called it ‘the most unpopular budget in history’
What was the other reason that thatcher wanted to cut government spending?
-she beloved that individuals spent their money better than the gov did
What did this belief of Thatcher’s lead to?
-shift away from direct taxation like income tax
-but to indirect tax like VAT - away from taxes in people’s incomes or property + towards taxes on goods + services
What was the result of this shift away from direct taxation?
-top rate of income tax fell from 83% to 40% by 1988
-the standard rate fell to 25% from 33%
-VAT went up from 8% to 15% 1979
What happened to taxes on petrol etc?
-taxes on petrol, cigarettes + alcohol went up in every single budget from 1979 to 1987
What did people argue in response to these changes?
-supporters argued reducing direct tax incentivise wealth creation by allowing people keep more of their income
-critics argued transferring burden onto indirect tax less progressive + hit poor harder
What else did cutting public spending lead to?
-a clash between cons central gov + lab controlled local councils
How did the thatcher gov view these lab controlled councils?
-saw left wing councils as enemies in terms of ideology + they blamed them for wasting resources
What was the most fiercest battle between the two?
-fought with the Greater London council (GLC) headed by left winger Ken Livingstone
-thatcher treated many GLC policies in education + public transport as provocations
Who was Ken Livingstone?
-demonised as face of the ‘loony left’
-1981 become leader of GLC + remained until GLC abolished 1986
-first elected mayor of london 2001-08
What was the ‘loony left’?
-name given to left wing local councils who promoted liberal + politically correct policies
What did the loony left promote?
-multicultural initiatives + gay rights
-creation nuclear free zones
-supported controversial issues like Irish republicanism + communism in Cuba + Nicaragua
What did the cons gov do to control lab local authority overspending?
-cons gov introduced rate capping
-limited amount money that GLC allowed raise in local taxation
What happened in 1985 regarding this cap?
-number of authority incl Sheffield + Liverpool tried rebel against cap
-refused to set budgets
What was the impact of this rebellion?
-they had to back down as were threatened with bankruptcy
-in 1986 local gov act abolished big metropolitan local authorities set up by Heath gov
-powers of central gov increased at expense of local gov
What were the short term and long term effects?
-short term = clear victory against ‘loony left’
-long term = damaged local accountability
But what happened despite the rhetoric of controlling spending?
-Thatcher never managed cut public spending in real terms
-due to spending on social security going up as result of high levels unemployment
