6 - 1980s: The highlights of the Regan & Thatcher era

One may argue that Regan & Thatcher’s policy planted the seed for the 2008 Financial Crisis.

But at least we can see a determination to substitute the wisdom of markets for the heavy hand of government runs through the Greenspan’s tenor prior 2008 crisis .


Ronald Wilson Reagan (February 6, 1911 – June 5, 2004) was the 40th President of the United States (1981–1989).
Margaret Hilda Thatcher, (born 13 October 1925) is a British politician, who was Prime Minister of the United Kingdom from 1979 to 1990.

Reagan once said:
"The nine most terrifying words in the English language are, "I'm from the government and I'm here to help."

Both Reagan and Thatcher came to office committed to reducing the power of government, and up to a point both did so. But here there was a strange contrast between them. Thatcher's privatisation and Reagan's deregulation were in line with this strategy. These policies in their different ways transferred economic power from the state into private hands. Yet within government, Reagan handed power from the federal administration to the states, while Thatcher took power away from local authorities to concentrate it at the centre.

Both of them cut income tax severely and made it hard for anyone to restore tax rates to their previous levels in either country without a very good excuse. Reagan managed to make low taxes one of the sacred cows of American politics

Ronald Reagan and Margaret Thatcher share one quality more important than differences of style and temperament. They are both politicians who paint in primary colours. There has been nothing neutral about them or the reactions they provoke. They are memorable personalities, who arouse feelings of enthusiastic admiration or of biting disapproval. Such leaders usually leave a strong imprint on the countries that they govern. How far is that true in their case? How much have they changed? What is the legacy of their association?

A Small government is one which minimizes its own activities. In its "perfect" form it would confine itself to foreign policy, defense and law and leave other activities to local government, companies and individuals.
Reaganomics refers to the economic policies promoted by United States President Ronald Reagan.

The four pillars of Reagan's economic policy were to:[1]
reduce the growth of government spending,
reduce marginal tax rates on income from labor and capital,
reduce government regulation of the economy,
control the money supply to reduce inflation.

Regan found his ideological soul mate in Margaret.

In hjs presidential campaign, Reagan campaigned on his favourite conservative themes of smaller government, lower taxes and greater individual liberty.

The idea of Small government was heavily promoted in the United Kingdom by the Conservative government of 1979 under the Premiership of Margaret Thatcher. There are differing views on the extent to which it was achieved.
An important part of the Thatcher government's policy was Privatization which was intended to reduce the role of the state in the economy. Supporters of Thatcherism would argue that this has been an unqualified success.
Thatcherism" is supposedly characterized by decreased state intervention via the free market economy, monetarist economic policy, privatisation of state-owned industries, lower direct taxation and higher indirect taxation, opposition to trade unions, a reduction of the size of the Welfare State, and entrepreneurialism.


Many argued that the latest financial crisis is due to lack of regulation and loose credit control in the finance sector. The modern trend of government’s endeavor in market deregulation and free market policy can be traced back to the Reagan & Thatcher era. In one extent, such a policy liberalized the credit market which in turn produced vast number of derivative products since.

Naomi Klein, author of "The Shock Doctrine: The Rise of Disaster Capitalism," an indictment of Reaganomics, free market ideologies, deregulation, privatized government and trickle-down economics
In fact, the meltdown is actually part of Reaganomics "Grand Strategy." Here's Nervy Naomi's analysis:
"Nobody should believe the overblown claims that the market crisis signals the death of 'free market' ideology. Free market ideology has always been a servant to the interests of capital, and its presence ebbs and flows depending on its usefulness to those interests. During boom times, it's profitable to preach laissez faire, because an absentee government allows speculative bubbles to inflate."


“Throughout these few rollercoaster months of credit crunch, stockmarket turmoil and, finally, wholesale inter-government rescue of the global financial system, economists, commentators and (mainly left-leaning) politicians have been suggesting that it would mark the end of the unbridled, deregulated capitalism unleashed in the Thatcher-Reagan years; the death of the masters of the universe and their unreal, incomprehensible "fictitious economy". Things will have to get real again”

Early in the 1st Reagan administration, Americans saved 12% of their income and household debt as a percentage of GDP was 63%. During the current Bush administration, Americans’ savings rate actually went below zero, while household debt as a percentage of GDP soared above 130%, a doubling in 25 years.

The Obama administration is generally view as the end of Regan era.

The Economy Is Bad, but 1982 Was Worse
By DAVID LEONHARDT
January 20, 2009
The first big blow to the economy was the 1979 revolution in Iran, which sent oil prices skyrocketing. The bigger blow was a series of sharp interest-rate increases by the Federal Reserve, meant to snap inflation. Home sales plummeted. At their worst, they were 30 percent lower than they are even now (again, adjusted for population size). The industrial Midwest was hardest hit, and the term “Rust Belt” became ubiquitous. Many families fled south and west, helping to create the modern Sun Belt.
Nationwide, the unemployment rate rose above 10 percent in 1982, compared with 7.2 percent last month.