In response to Anton's Reader Riposte, I'm not sure Mrs Thatcher's macro policy makes for a good case study in support of the existence of the confidence fairy.
The early years of her first term saw the implementation of very tight fiscal and monetary policies, and the result was a severe contraction. When macro policy was then loosened, economic recovery followed. When looking at the fiscal position over this period, it's important to look at the cyclically adjusted fiscal stance to see whether policy was stimulatory or contractionary.
Two other quick points.
First, Mrs T was happy to use tax increases to get her fiscal consolidation. In particular, she hiked VAT to such an extent that it's been estimated the overall tax take levied on labour increased relative to the previous government and stayed above it until the late 1980s. Indeed, noted supply-sider Arthur Laffer took to the pages of the Wall Street Journal to denounce her approach.
Second, the success in restoring fiscal health to the UK economy over the period owed more than a little to the good luck of a nicely timed windfall from North Sea oil.
Photo by Flickr user cseeman.
