Aeron Davis
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Creative destruction and the road to nowhere
A microeconomists' story
in Bankruptcy, bubbles and bailouts
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Chapter two begins with the crucial shocks that bludgeoned the Treasury: near bankruptcy, the 1976 IMF bailout, and the arrival of the 1979 Thatcher government. The new administration was intent on tearing things up starting with the removal of top Exchequer mandarins. But while the Thatcherites knew what they wanted to get rid of (nationalised industries, unions, Keynesianism), they weren’t so sure of how everything would happen or what would replace state economic forms of management.

That left a rapidly reconfigured Treasury to begin drawing up the map. Behind the selloffs and political battles, changes in the Exchequer were very significant. One of these was the strengthening of the institution itself, giving it considerable new powers over other Whitehall departments. Another was the rise to power of a new generation of monetarists and economic modellers within the institution, replacing the Keynesians and generalists of before.

These combined changes effectively placed economic policymaking firmly in the hands of the Treasury at the same time it was rejecting the idea of state economic management altogether. So began the long road, not simply towards free markets, but to the end of government macroeconomic policymaking. Fiscal policy was put on autopilot while monetarist policy came to be reduced to interest rate setting, a lever eventually handed over to the Bank of England. Micro became the new macro.

The question was what was going to replace all that state-managed industrial activity and multiple forms of national economic investment and stimulation? All these things were still needed to keep the economy growing but who or what was going fill the gap? Chapters three, four and five provide the answers.

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Bankruptcy, bubbles and bailouts

The inside history of the Treasury since 1976

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