The economic value of a leader

Some tedious blogger who I won't glorify with a link challenged Paul Krugman to admit that Mrs. Thatcher was 'good for the UK economy'. That made me wonder how you would tell. At first it doesn't seem difficult: there are a number of indicators of which perhaps GDP is the most obvious, and Thatcher the Milk Snatcher did indeed have policies which seem to have resulted in faster GDP growth.

However thinking about it for a moment it is obvious how to produce higher GDP growth: don't spend on infrastructure and instead use the money to stimulate the economy. In the long term you reduce growth as the education system, transport and utility infrastructure can't support the needs of the economy and you have to raise taxes high to fix them. But in the short term you get an upswing.



My gut instinct is that that is what happened under Thatcher: her government chronically underspent on the NHS, universities, schools, railways and so on. This allowed her to cut taxes which stimulated the economy for a few years. But because the workforce is undereducated, you can't get around quickly and conveniently, and so on, eventually these constraints start to bite and growth is slower than it would have been if essential services had been maintained and improved. The present value of future earnings is lower without proper investment as any good private equity person knows. Of course measuring this long term decrease in potential GDP is enormously difficult to measure, but the phenomenon is certainly there. So perhaps even on economic grounds history will judge that Thatcher does not score that well.