I have to strongly disagree with respect to Britain's monetary policy. Britain, not unlike much of the world, faced a severe bout of inflation from the late 1970s into the early 1980s.

British Retail Price Data (Quarterly annualized figures):


The wrenching monetary policy was necessary to break the back of the inflation so that the environment could become conducive to sustained, long-term economic growth. Had tighter monetary policy been applied earlier, one would probably not have had the need for the magnitude of tightening that occurred once inflation had gotten out of hand on account of a toxic mix of food prices, fuel prices, wage-price dynamics, and inflation expectations (which reflected a combination of rising inflation begetting expectations for more inflation and leading to purchasing decisions that fueled even greater inflation and a crisis in the credibility of monetary policy on account of a regime of easy money that lasted too long despite rising inflation).

In a recent op-ed piece published in The Wall Street JournalCarnegie Mellon professor of political economy Allan Meltzer put the 1970s situation into perspective. He wrote:

One lesson of the inflationary 1970s: A country that will not accept the possibility of a small recession will end up having a big one when the politicians at last respond to the public's complaints about inflation. Instead of paying the relatively small cost of a possible recession, the public pays the much larger cost of sustained inflation and a deeper recession.

Both Britain and the United States entered the 1980s in just such a situation. The Bank of England, much like the U.S. Federal Reserve, entered a situation in which they had to, as Meltzer put it, "at last respond to the public's complaints about inflation." As a result, both Britain and the U.S. experienced a significant recession.

In my opinion, the tough monetary policy was necessary regardless of whom occupied 10 Downing Street. Had different policy choices been made during the 1970s, prior to Margaret Thatcher's becoming Prime Minister, the tough monetary policy medicine might not have been necessary. Unfortunately, that is not what happened. Therefore, inflation had to be curbed and a reasonable degree of price stability restored, and such efforts required a period of very tight money.