Krugman Takes on Thatcher's Legacy as Debate Rages

Dan Kitwood | Getty Images Europe

Former British Prime Minister Margaret Thatcher in 2010

New York Times columnist Paul Krugman, scourge of monetary hawks and austerity-believers alike, has entered the tense debate on Margaret Thatcher's legacy and already drawn the ire of HSBC's chief economist.

In his latest "Conscience of a Liberal" blog post, Krugman admitted Thatcher turned the economy around, but argued that any benefits that emerged from her transformations occurred long after her period in office.

"If anyone tells you that Thatcher saved the British economy," Krugman wrote, "you should ask why the results of that salvation took so very long to materialize."

Krugman also made a snide attack on the rise of London's financial sector and the "rise of fancy finance," something brought on by Thatcher's 1980s deregulation.

Krugman's view was instantly challenged by HSBC's chief economist Stephen King, who tweeted, "Totally bizarre blog by @NYTimeskrugman on Thatcherism....no mention whatsoever of inflation."

(Read More: Margaret Thatcher's Greatest Moments)

King also took on Jonathan Portes, the director of the U.K.'s National Institute of Economic and Social Research, for only focusing on the rise of out-of-work benefit claimants during Thatcher's 11 years in power.

According to King, Thatcher's overriding impact on the U.K. economy was to bring down inflation, which he said was the major macro-economic problem of the late 1970s.

It isn't the first time that Krugman has waded into controversy across the Atlantic. He's been previously criticized for his opinions the Austrian and Latvian economies.

While Thatcher's death has led to an outpouring of sympathy from all sides of the international political spectrum, a glance at Britain's front pages shows the scale of divisiveness over Thatcher's legacy at home.

Headlines have varied from: "The woman who saved Britain" to "The woman who tore Britain apart."

Krugman does, however, give Thatcher some credit which will please her supporters.

"There is no question that Britain did turn around," Krugman wrote. "In the 1970s it was a country with huge economic problems; today, despite the failure of austerity policies, it's in a much stronger position."

Even opponents of Thatcher admit some change was needed. Tony Travers of the London School of Economics told CNBC that, "if you talk privately to many Labour politicians, they will admit Thatcher changed the economy in ways that although they didn't do it, in the end, they accept would have had to have happened."

Economic Legacy: Speed of Change

Many criticize the speed with which Thatcher brought these changes to the U.K. economy, and stress that despite the common belief that the Iron Lady "rolled back the state," the size of government did in fact expand during her tenure.

Portes, who also came under fire from King, said the current debate about Britain's huge benefits network has much to do with the devastation Thatcher brought to British communities.

(Read More: Kudlow: Margaret Thatcher, Freedom and Free Markets)

"When she came to power in 1979 there were two million on out-of-work benefits," Portes argued. "By the mid-1990s there were six million; four million extra people on out-of-work benefits. The problems we're dealing with today, we're talking about dealing with the legacy of Thatcher."

Travers agreed with Portes, arguing that her changes left some parts of the U.K. that are still under-performing today. For Travers and Portes, the speed of Britain's economic transformation, that left little help for ex-miners to find new, gainful unemployment, was a devastating political decision on her part.

But Peter Toogood of Old Broad Street Research said Thatcher, "got blamed for things that were going to happen either that decade, or the following decade, or the one after. The inevitability of what went on in our industrializing sector was there to see. Yes, the French still have an industrial sector but it's in decline."

"Those industries were going to die."

Tim Knox of the Center for Policy Studies, a think-tank co-founded by Margaret Thatcher and her policy-guru Keith Joseph, said that in Thatcher's legacy was squandered by the New Labour government of Tony Blair.

"People talk about Blair being the heir to Thatcher," he said. "Well, he was a very weak heir if that is the case. Don't forget that he inherited a golden economic legacy in 1997, mainly because of the reforms of the Thatcher period, a golden legacy that was effectively squandered within eight years."

(Read More: Did Thatcher's Reforms Pave Way for Euro Zone?)

As economists bicker over Thatcher's impact, Satyajit Das, the author of "Traders, Guns & Money," offered a fittingly balanced conclusion on Thatcher.

"Well, I think there are certain people in financial markets in England who should thank her very deeply from the bottoms of their hearts today," Das told CNBC, "because without her I suspect the big bang which deregulated the English financial system wouldn't have occurred."

However, Das said the financial crisis of 2008 made that legacy highly dubious – which along with her social impact on Britain, made it difficult for us today to find an accurate way to evaluate Thatcher.

"I think I'll leave it to historians in a couple of hundred years to say whether it was all for the good or all for the bad. But I agree with sentiment that she was her own woman and she certainly divided opinion."