The Role of an Economic Adviser: Some Lessons from the Thatcher Years

The policy changes in the Thatcher government 1979-1987 were to "roll back the frontiers of socialism". Reductions in public expenditure, the budget deficit and monetary growth were complemented by deregulation, non-intervention and privatization. With these general goals in mind, I advised Mrs. Thatcher on the fiscal/monetary policy mix as well as on some microeconomic issues. The most important advise was on the budget of 1981. This was the complete antithesis of the conventional wisdom of macroeconomics - tightening dramatically the fiscal stance during the most severe recession since World War II. This was needed to win credibility and confidence, and was accompanied by an easing of monetary policy. The dominance of monetary policy was demonstrated by the long recovery from the late 1981. Two other examples of "successful" advise were the "Young Workers Scheme" to assist in liberating labor markets, and the RF'I-X (misnamed "price cap") regulation system for privatized utilities. Finally a failure: although Mrs. Thatcher and I were convinced that entering the ERM was bad policy, she joined the mechanism in 1990. The essential ingredients of success as an advisor are a firm grip on basic economics on the part of the advisee as well as advisor, and transparent integrity.