Lawson: an economist's evaluation

 It is good to see a reasoned counter to the general media (including the BBC) summing-up of Nigel Lawson as "a great reforming chancellor". It struck me at the time that these views came from people in the tax bracket who most benefit in the short term from Lawson and Thatcher's philosophy of cutting direct taxation. Simon Wren-Lewis writes from a democratic socialist perspective, but he does season his criticisms with mention of the few things which Lawson got right.

This paragraph struck a chord:

Monetarism didn’t make sense either in theory or practice. In terms of theory it made little sense to set interest rates to hit an intermediate target (some measure of money) rather than the final objective (inflation and output). It was a bad policy in practice because it caused a recession that decimated UK manufacturing, resulting in a prolonged period of very high unemployment. This was never the intention of the policy, because those putting it forward thought it would cause little disruption.

I was on a contract in Coventry in the 1990s. Coventry had been hit particularly hard by the deliberate raising of the base rate by the government. Practically the whole of the machine-tool industry, in debt to the banks, had been wiped out. A co-contractor, a local, opined that those companies had been too complacent, not realising the need to modernise. He saw the period as one of clearing out of dead wood. The net result, however, was handing over the industry to the Americans, Germans and, predominantly, the Japanese. One wonders whether the outcome would have been better if government had worked constructively on modernisation with industry and the banks instead of hitting them with measures derived from an untried intellectual theory.