Mistakes of Lawson and Thatcher

When I began studying economics as an A Level student I found it interesting to examine the mistakes of politicians. One thing that struck me was that politicians often seemed to have a very poor understanding of basic economics.

Of course, it is easy to be wise after the event, but here I wrote an essay about the Lawson boom and the mistakes that were made. In a nutshell the problem with the Lawson boom was.

1. They allowed the economy to grow too fast, above the long run trend rate.
2. This boom caused inflation.
3. To reduce inflation, they used the wrong policy. They choose to target the exchange rate (part of the ERM) rather than inflation and growth directly. This caused interest rates to be higher than necessary.
4. They were successful in reducing the inflation that they had created, but, the cost was a deep recession.
5. The boom and bust was particularly visible in the housing market

Tomorrow, I will write about the recession of 1991, which is of interest given the fact the UK may soon enter into recession.

Lawson Boom of the late 1980s 

The Economy under Mrs Thatcher 1979-84