Gina Rinehart has made the curious claim today that Australia should follow the example of Britain’s Thatcher Government:
‘’Thatcher steered through a lack of courage in her own political party, which had become riddled with lefties or ‘non-courageous wets’ and self-interested power mongrels, who didn’t grasp or didn’t want to grasp what was needed for their own country,’’ Rinehart said.
‘’What Thatcher did for Britain our own leaders should do for us – cut spending, cut waste, cut the shackles and back hard work.’’
Rinehart’s admiration for Thatcher’s Britain unfortunately does not stand up to scrutiny.
By deregulating most sectors of the economy, whilst leaving Britain’s highly restrictive urban planning system in place, Thatcher essentially created a bubble factory. With access to credit eased, and housing supply unable to respond to rising demand, UK house prices exploded (see below charts).
Partly due to the above factors, UK debt held by households, the government and the financial sector, is amongst the highest in the developed world – hardly something to base a sustainable economy on (see next chart).
A Strategy Note released a few years back by Tullett Prebon outlined the UK economy’s imbalances in all of their splendor:
The problems facing the UK today are the direct result of reckless consumption by individuals and government alike, the former funded by equally reckless lenders. Now, and although the public are not yet aware of it, the bill for this era of unheeding greed has turned up. To put it colloquially, many of the imported gadgets might already be in landfill, but the debt incurred to buy them remains…
If the owner of a successful restaurant borrows to invest in additional seating space, the debt is selfliquidating because it will be serviced and paid off from the higher income that the expanded restaurant will generate. But borrowing to pay for a new car or a foreign holiday is non-selfliquidating, because it is a form of consumption which does not leverage the borrower’s income. Though the parallels are necessarily less than exact, the sharp fall in Britain’s return on capital reflects the fact that the overwhelming bulk of new borrowings have been non-self-liquidating…
Government has been guilty of over-consumption, and very little has been invested in self-liquidating projects such the improvement of the country’s road, rail, power or telecommunications infrastructure.
But the biggest problems have not been caused by government, but by individual borrowers.
The biggest single debt increment during the period between 2002 and 2009 was mortgage borrowing…
With the UK economy facing ongoing anaemic growth, and public finances over extended, the UK Government has now endeavoured to ‘kick the can down the road’ by encouraging home buyers to leverage-up into housing via the £130 billion of “Help-to-Buy” off-balance sheet government mortgage guarantees – akin to overcoming a hangover by drinking more alcohol.
I fail to see how Britain’s bubble economy is something that Australia should seek to emulate.
