Bloomberg
May 3, 2012
Three decades ago, U.K. Prime Minister Margaret Thatcher was confronted with a nation bordering on irrelevance, a stagnant economy and a set of entrenched beliefs about the relationship between government and the people.
Thatcher faced down striking coal miners and forced through a series of free-market reforms that unshackled Britain’s economy and made it vibrant once again. To the chorus of accusations that she was killing the economy, she replied: “There is no alternative.”
She was right. Short-term pain -- in that case, a recession and a sharp spike in unemployment -- for long-term gain is generally a winning strategy.
We could use a dose of Lady Thatcher today. Instead, German Chancellor Angela Merkel has been cast in the Iron Lady role, charged with fending off policy prescriptions that run counter to her preferred fiscal discipline for the euro zone. In the last week alone, Harvard’s Lawrence Summers, Princeton’s Paul Krugman, Columbia’s Joseph Stiglitz and Berkeley’s Christina Romer wrote op-eds claiming that austerity isn’t working. Instead, the focus should be on growth.
That’s a false dichotomy. Who wouldn’t choose growth over austerity?
Europe’s real choice isn’t unlike the one faced by the U.S., according to Jim Glassman, senior U.S. economist at JPMorgan Chase & Co. The choice is cyclical versus structural.
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