Margaret Thatcher oversaw recession, social unrest and rising unemployment. As the government embark on their policy of drastic spending cuts, will history repeat itself?

This is a dangerous time for Britain’s economy. History teaches us that recovery from a large-scale financial crisis can be slow and stuttering. We need a clear plan for reducing the deficit, based on a careful balance between employment, spending and taxation. But this can only happen once growth is secured—and over a markedly longer period than the government is planning.

Far from learning from our history, I fear the coalition is set to make the same mistakes as past governments. The basic questions are being ignored: is it right to cut billions from public services, and take billions out of family budgets this financial year and next? What will that do to jobs and growth? What will it mean for the deficit?

There are important dissenting voices—the economists Anatole Kaletsky, Paul Krugman, Robert Skidelsky and David Blanchflower, to name a few. But for the most part, the political and media consensus dictates that the deficit is the only issue that matters in economic policy; that the measures set out in the budget to reduce it are unavoidable; and that there is no alternative to the coalition timetable. So strong is this consensus that a special name has been given to those who take a different view: “deficit deniers.”

Yet the history of British policymaking over the past century shows that, on all the other occasions when major economic misjudgements were made, political, media, financial and popular opinion was in favour of the decision at the time. Dissenting voices of economists were ignored.

In 1925, as chancellor, Winston Churchill decided to return sterling to the gold standard, on the grounds that there was no credible alternative the markets would support—and that it would boost confidence and private investment. He was supported by the broad mass of economic opinion, including the governor of the Bank of England and the Labour leadership. Only John Maynard Keynes stood out against the consensus at the fateful Downing Street dinner where Churchill made the decision. As Keynes correctly predicted in an essay shortly after, “The economic consequences of Mr Churchill,” the result was deflation, rising unemployment, a general strike and then Conservative election defeat.

In 1931, two years after the biggest financial crisis of the 20th century, Labour prime minister Ramsay MacDonald claimed that spending cuts were unavoidable to reduce the deficit, ease pressure on sterling and satisfy the markets, in the hope of triggering a private sector recovery. Labour MPs rebelled, and MacDonald formed a government with the Conservatives to drive the plan through, with broad media support. Again, Keynes opposed the consensus, writing that: “Every person who hates social progress… triumphantly announces how, by refraining from every form of economic activity, we can all become prosperous again.” The result of MacDonald’s plan? The private sector recovery failed to materialise. Britain faced years of low growth.

Again, in 1949 and 1967, the disastrous decisions of Labour governments to resist inevitable currency devaluation were widely supported by both press and Conservatives. And in 1981, Geoffrey Howe and Margaret Thatcher told the country “there is no alternative” to dramatic hikes in interest rates and taxes to tackle inflation. The consequences? The deepest recession since the second world war, social unrest, five years of rising unemployment, 3m jobs lost in Britain’s manufacturing industries and communities scarred for a generation.

Finally, in 1990, Margaret Thatcher and John Major decided to join the European Exchange Rate Mechanism in the face of heavy financial market pressure. It was a decision supported by the CBI, the TUC, the governor of the Bank of England, the leadership of the Labour party, and was widely acclaimed by the press. The result was interest rates in double figures and the longest recession since the war.

So the lesson I draw from history is to be wary of any British economic policymaker or media commentator who tells you there is no alternative—or that something has to be done because the markets demand it.

This is an extract from a speech hosted by Bloomberg

For more on Labour, see David Goodhart’s review of Tony’s Blair’s “A Journey”. Reading Blair’s autobiography, Goodhart admits to “liking him less, and admiring him more.” More than anything, Goodhart says, “when we look at Tony Blair we look at ourselves.”