{"title":"How Margaret Thatcher's Ideology Emboldened Her to Bite the Anti-inflationary Bullet","authors":"Ian M. McDonald","doi":"10.1111/1759-3441.12432","DOIUrl":null,"url":null,"abstract":"<p>To reduce the rate of inflation, Margaret Thatcher followed a policy of tight money. Milton Friedman in reviewing this policy predicted that it would lead to a <i>modest</i> reduction in output and employment (that) will be a side effect of reducing inflation to single figures by 1982, Friedman (1980, p. 14, my emphasis). I call this prediction Friedman's flaw. Evidence available when Thatcher introduced this policy would have revealed Friedman's flaw-the cost could have been expected to be immodest. From various biographical and other accounts, I put forward several reasons to explain how Thatcher's ideology made her susceptible to Friedman's flaw. I propose a theory based on loss aversion to explain the costly nature of disinflation.</p>","PeriodicalId":45208,"journal":{"name":"Economic Papers","volume":"44 1","pages":"49-61"},"PeriodicalIF":0.9000,"publicationDate":"2025-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/1759-3441.12432","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Economic Papers","FirstCategoryId":"1085","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/1759-3441.12432","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"ECONOMICS","Score":null,"Total":0}
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Abstract
To reduce the rate of inflation, Margaret Thatcher followed a policy of tight money. Milton Friedman in reviewing this policy predicted that it would lead to a modest reduction in output and employment (that) will be a side effect of reducing inflation to single figures by 1982, Friedman (1980, p. 14, my emphasis). I call this prediction Friedman's flaw. Evidence available when Thatcher introduced this policy would have revealed Friedman's flaw-the cost could have been expected to be immodest. From various biographical and other accounts, I put forward several reasons to explain how Thatcher's ideology made her susceptible to Friedman's flaw. I propose a theory based on loss aversion to explain the costly nature of disinflation.
期刊介绍：
Economic Papers is one of two journals published by the Economics Society of Australia. The journal features a balance of high quality research in applied economics and economic policy analysis which distinguishes it from other Australian journals. The intended audience is the broad range of economists working in business, government and academic communities within Australia and internationally who are interested in economic issues related to Australia and the Asia-Pacific region. Contributions are sought from economists working in these areas and should be written to be accessible to a wide section of our readership. All contributions are refereed.
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