 |
| Cynical Assumptions: British Prime Minister Liz Truss and her Chancellor of the Exchequer, Kwasi Kwarteng, appeared to be operating on the cynical assumption that there is insufficient historical memory available to the British political class for anyone to recall that her “supply-side economics” remedy has been applied, off-and-on, and always catastrophically, for more than 40 years. |
THAT LIZ TRUSS AND KWASI KWARTENG were surprised at the dramatic reaction to their “Mini-Budget” is, in itself, surprising. After all, the contents of Kwarteng’s package had been “trailed” through the news media for weeks. The financial markets, it was fondly assumed by the British Prime Minister’s advisers, had already “built-in” her government’s policies. Their shocked reaction to the markets’ shocked reaction is readily imagined.
In many respects, what has been on display in the United Kingdom over the past few weeks is a disturbing contest of cynicisms.
Truss and her team were operating on the cynical assumption that there is insufficient historical memory available to the British political class for anyone to recall that her “supply-side economics” remedy has been applied, off-and-on, and always catastrophically, for more than 40 years.
Meanwhile, the financial markets were operating on the equally cynical assumption that Truss could not possibly be serious, and that her commitment to tax-cuts in the midst of double-digit inflation and a cost-of-living crisis was just one of those things you say on the campaign trail, and then immediately jettison once in power. That the Prime Minister and her Chancellor of the Exchequer would actually go ahead and blow-up the UK economy was totally unexpected – and the Pound paid the price.
Viewed dispassionately, what is most shocking about this contest of cynicisms is how little impact the experiences of the last three years have made on both the political and financial elites.
The global Covid-19 pandemic, and the measures adopted to resist it, should have made Truss’s disinterment of supply-side economics (also known as Thatcherism, Reaganism, Rogernomics, and neoliberalism) the object of risible laughter. Beating the pandemic – and saving the global economy – had been achieved by printing money in huge quantities, spending it like a sailor on shore-leave, and then upping the state’s revenue collection capabilities to prevent the wallowing economic ship from capsizing and sinking.
In other words, by adopting the very measures supply-side economists have spent the last 50 years warning politicians against.
Truss and her fanatical Tory friends should also have come away from the pandemic with the vital importance of building and maintaining social cohesion seared into their political consciousness. If the ethical case for looking after the people somehow eluded her, Truss should at least have been educated by the fate of her predecessor. Having won an historic election victory on the strength of becoming the “People’s Tory”, Boris Johnson came to grief by being exposed as a do-as-I-say-not-as-I-do kind of guy.
“Levelling-up” had proved to be a winning slogan for the British Conservatives. Grinding-down is proving considerably less popular. It takes a great deal to put the Sir Keir Starmer-led Labour Party 33 percentage points ahead of the Conservatives, but Truss’s mini-budget rose to meet the challenge!
New Zealand’s own conservatives, represented in the National and Act parties, have shown as little interest in learning anything from the last three years as their British counterparts. They do, however, appear to be quite keen on taking instruction from the same right-wing think-tanks as the Tories.
Christopher Luxon demonstrated this pedagogical relationship by turning up to a meeting of the Policy Exchange – one of the big-three UK ideology factories alongside the Centre for Policy Studies (Thatcher’s baby) and the Institute of Economic Affairs (Truss’s current Svengali). Keen, perhaps, to show his hosts that he, too, possessed the requisite hard-nosed ideological chops, Luxon declaimed against a New Zealand business community that was “getting soft and looking to the government for all their answers.” The conservative government he intends to lead by the end of 2023 will be all about “unleashing enterprise”.
How? Well, this is where it all gets just a little bit embarrassing. Luxon’s formula for success turns out to be exactly the same as Truss’s: cut taxes, restrain government spending, reduce the regulatory burden on private enterprise. In short, Luxon’s National Party is re-dedicating itself to the precepts of supply-side economics.
Not surprisingly, the sharply negative reaction of the British financial markets to Truss’s resurrection of Thatcherism, has prompted questions here about Luxon’s revivification of the economic and social policies of Roger Douglas and Ruth Richardson. National’s critics point to the obvious similarities in the two parties’ programmes, and are pressing Luxon to explain why their similar content will not produce similar results.
The Opposition’s right-wing allies have been quick to play down the similarities between the policy frameworks of Truss and Luxon. According to one economist, they are as different as “chalk and cheese”. National’s tax-cuts, for example, are much smaller when presented as a percentage of New Zealand’s GDP. Neither do New Zealand consumers yet require the massive subsidies lavished on the UK’s industrial and domestic energy suppliers to keep the home gas-fires burning.
Even so, the general shape of National’s policy platform conforms – at least in ideological terms – with that of Truss and Kwarteng. Further enriching those at the summit of the income pyramid is held, as a matter of faith, to be the necessary first step towards re-igniting capital investment, labour productivity and economic growth. Paradoxically, the utter failure of these measures to generate growth in the short term is taken as proof that they are working.
As anyone who was paying attention as supply-side economics was being imposed here in New Zealand during the late-1980s will recall, Kiwis were constantly being enjoined to endure “short-term pain for long-term gain”. Never mind that the ill-fated “New Zealand Experiment”, like the equally disastrous “Kansas Experiment”, produced the opposite of what was promised. They simply hadn’t been given the necessary time to bear fruit.
Those undergoing the transition from “the failed policies of the past” to the neoliberal nirvana of the future, had to be prepared to “stay the course”. In the long run, the supply-siders policies were bound to work. The problem being, of course, that, in the words of the now despised economist, John Maynard Keynes: “In the ‘long run’, we’re all dead.”
It remains to be seen whether Truss possesses the single-minded tenacity of her hero, Margaret Thatcher, who, when pressured to reverse her hard-line policies, famously taunted her critics: “You turn if you want to, the Lady’s not for turning.” One suspects, however, that Truss is living proof of Karl Marx’s observation that History repeats itself: the first time as tragedy, the second time as farce.
Supply Side Economics has always been bogus: economically, mathematically, politically and morally. It has never been anything more than a screen behind which the wealthiest are protected at the expense of the poorest.
But, as the saying goes: “Fool me once, shame on you: fool me twice, shame on me.”
Truss and Luxon seem to have forgotten that the British and the New Zealand people have seen this movie before. They know how it ends. Second time around, they may not be quite so willing to pick up the tab.
POSTSCRIPT: On Monday, 3 October (GMT) Kwasi Kwarteng executed a “screeching U-turn” and abandoned his promise to abolish the top-rate of UK Income Tax. The rest of his supply-side package remains intact, however, raising the wicked thought that the tax-cuts-for-the-wealthiest bit might have been included in his mini-budget for the express purpose of being discarded later ..... under pressure. Are the Tories really that cynical? Is the Pope a Catholic?
This essay was originally posted on the Interest.co.nz website on Monday, 3 October 2022.
16 comments:
I don't know about "supply-side" economics but I know I can spend my money more effectively than can this government, which can't even fill the potholes in a timely manner, and I know that inflation has resulted through bracket creep in many average wage earners paying penal amounts of tax. Under Labour we now have 14,000 extra pen-pushers in Wellington costing around $100K each and contributing almost nothing. There is plenty of scope for people to have their money returned to them through tax cuts.
I know that you are left. But I can assure you that supply side economics is not always catastrophic. In fact quite the reverse.
I was in the UK for much of the time during 1982 to 1988. I can certainly testify how much Thatcherism transformed the UK economy over those years, and substantially for the better. When I arrived the country was still trying to recover from the disastrous policies of the 1970's. By the time I left, the UK was a country transformed. There was much more prosperity and dynamism. That was evident just about everywhere. Except in the mining towns in the North. The obvious increased prosperity was the reason why Thatcher kept getting re-elected. The great majority of people were clearly benefitting.
It was the same in New Zealand. Rogernomics transformed our economy, and on the whole, for the better. Anyone who has any recollection how dismal New Zealand was during the 1970's would recall how much better things were by 1988. As with Thatcherism, there were places that declined, especially in small towns in the Far North, the East Coast and much of the Volcanic Plateau (forestry).
Now I appreciate that you and Jane Kelsey don't see it that way.
Liz Truss's problem is that her tax cuts come on top of the massive growth of credit during the Pandemic. There has already been a vast amount of supply side economics. The struggle is to recover from that, not exacerbate it. That is why Rishi Sunak was warning against tax cuts during the leadership campaign. I imagine many in the UK wish he had been chosen. It is perhaps an argument why it is best to leave the choice of Leader to the MP's who know their colleagues vastly better than the general party membership.
When even the natural friends of conservative governments, the financial markets, show they no longer believe the myth that tax cuts for the wealthiest will drive an efflorescence of entrepreneur-driven growth - then the myth is dead. These John Key types - becoming absurdly rich through the most socially useless of all occupations (speculation) - have by their actions made clear that it's nonsense.
And the National Party, along with all their enablers, mouthpieces and propagandists throughout the media/pundit class, are spinning furiously to distinguish themselves from the UK Tories. They can't do otherwise. Tax cuts favouring the wealthy are the only tool in their toolbox and without it they are bereft. Without it, they may as well pack up their tent and go home - which on the surface, sounds like quite a good idea.
To: Wayne Mapp.
Permit me to congratulate you, Wayne, on a word-perfect rendition of the neoliberal party-line. I suspect you can recite that mantra in your sleep!
One of the biggest problems which you and your fellow supply-siders have, however, is that there are still plenty of New Zealanders who remember the 1970s: who lived through the 1980s; and who still know people badly damaged by the policies of your party in the 1990s.
The UK also has such people - all of them with working memories.
Your great mistake, Wayne, is that you conflate your own experience, and the experience of your friends, with the experience of the majority.
The only thing which saved the latter from absolute destitution and ruin were precisely the institutions of the welfare state that you neoliberals would so much like to destroy, but which you retain just enough of your instinct for self-preservation to keep in place.
Liz Truss, however, may yet prove to be the exception. She does not appear to have any instinct for self-preservation at all. I'm confident that Sir Keir Starmer is as hopeful as I am that, just this once, the appearance and the reality turn out to be one and the same.
With any luck, Argentina will invade the Falklands and save Liz Truss' political bacon.
Worked for Margaret Thatcher.
Hopefully another oil and gas field, like the North Sea, will be discovered and save her economic bacon.
Worked for Margaret Thatcher.
The arse started falling out of the New Zealand economy 1966/67. Arse totally fell out 1973/74.
Muldoon was a crap prime minister and a disastrous minister of finance.
Roger Douglas and Ruth Richardson took a bad situation and made it worse.
Anyone would think that Milton Friedman was the only economist alive in 1984.
The difference between Truss's and Luxon's remedies for the present economic problems is that the economies of the 80's and now are as different as chalk and cheese.
The oil shock of the 70's when oil exporting countries woke up to the fact that the world was booming on the availability of cheep energy supplied by their oil was profiting only the Western based oil companies and they were only getting the pollution.
They got their heads together and demanded a price for their oil that reflected it's value to the rest of the world. This caused a temporary inflation that rocked the western world's economies as the adjustment was made to accomodate the higher price of oil.
Otherwise the world esp the western world since ww2 was in a run of the most affluent and egalitarian economic state that had ever existed.
The inflation of the 70's precipitated by the oil shock was used as a reason to convince the public that the system needed an overhaul. but it didn't. It needed time to adjust. But the system that was introduced by Reagan, Thatcher and Douglas harvested the affluence of the 50s and 60s and concentrated that affluence into the hands of a the few. to the extent that by the 2000s most wealth and earning power was in the hands of a small minority ; to the extent that those who control it have no incentive to use it for productive purposes, and banks won't lend for productive purposes and speculation has become the only game in town. This is the maturity of the neoliberal experiment. as natural as the weather , but it provides the exact economic opposite of the situation in the early 80's . There is no funamental dynamism of an economy to harvest. And the reaction of the market is due to the vague understanding of those that control the wealth, though largly the same people who controld it in the 80's , understand that this is no longer a mechanism from which they will benefit.
D J S
Yupp.
The Pope is a devout, doctrinaire, committed passionate single-minded Catholic a model for Truss as Thatcher reincarnated.
Oh Dear.
Remains to be seen how Luxon rates on this draconian scale.
A lot of water still to go up the Harbour before he prevails ... with the Nat Caucus and plays the supply-sider par excellence.
I think this is missing some key information. Truss and Kwarteng's mini budget includes a massive subsidisation of the UK population's power bills. Something like 7% of GDP will go on keeping the lights on this winter. Is that really neoliberalism? The fact that the UK Government just took on the financial markets and got spanked tells me that no UK Government will make the same mistake in a hurry.
I think you are off on the wrong foot Chris. Wayne probably has a tape, cd or a parrot, or a starling even as they can learn to talk, which recites the neolib mantra throughout his dreams so it is always fresh in his mind.
The precepts that he bears in mind could be the subject of this sad elegy:
They shall grow not old, as we that are left grow old:
Age shall not weary them, nor the years condemn.
At the going down of the sun and in the morning
We will remember them.
'In 1979 the post-tax income of the top 10% of the population was five times that of the bottom 10%; by 1997 it had doubled to 10 times as much. After three decades during which economic growth was shared across income groups, the distribution went into reverse...Pensioners were the worst hit. The proportion living below the poverty line rose from 13% to 43%. Child poverty more than doubled. The rich saw their tax rates fall from 83% to 40%.' - The Guardian
North Sea oil revenue was squandered, indeed, funneled into the rich pockets. Unlike Norway, no investment, leaving generations vulnerable. The Poll Tax a final attempt at squeezing the poor. You may have noticed, Wayne, it was greeted with riots, not celebratory parties.
" There was much more prosperity and dynamism. That was evident just about everywhere." I think you need to define everywhere. Indeed, not just demographically but ethnically. I guess you just did not notice the child poverty and freezing pensioners. I guess you didn't spend time in Brixton, Toxteth or Moss Side. Maybe visiting the East African Asian communities in Ealing, or the Bangladeshis in West Ham wasn't on your itinerary. Perhaps the rise of neo-fascists past you by. "The great majority of people were clearly benefitting", I wonder how children in poverty is weighted against your perception.
I was in Britain for the final years of Thatcher, unlike Wayne, I saw despair and a country in decline. Britain had ceased to be a production country (except for draining the North sea) and became a financial service nation. Those in the City profited for a period. Now, even as a financial service provider it is set to lose to Frankfurt. What is the Tories plan, look to the numerous tax haven nations Westminster protects and compete for the international money laundering market.
It is amazing how someone can live in a country but never see what is happening at street level. In the late 1980s, the Tory minister, Sir George Young said:
‘The homeless? Aren’t they the people you step over when you came out of the opera?’
Chris,
You are wrong about the affect of the economic reforms on the majority. The majority have benefitted from the reforms of the last 40 years. There is lots of statistical data about that including the growth of median per capita incomes. That is why governments implementing these policies kept getting re-elected.
I would concede (as indeed I did in my initial contribution) that there was a distinct minority who didn't not benefit, particularly those with limited and les flexible education working in specific industries and regions.
I think you have confused National with Act. National, and moderate conservatives in the western world, never had any intention of dismantling the welfare state. It was not just a sense of self preservation, it was a sense of what was right. In fact in many ways they expanded it, though on a more individualistic basis than the left would like. For instance Bill English's social investment initiatives.
Anyway, you and I will never agree on this. You have been consistent for the last 40 years that the reforms were wrong, I the reverse.
I would note it was my experience in the UK that caused me to change from Labour to National though it was some time before National trusted my shift, hence the reason that it was 1996 before I became an MP, and not 1990. Changing parties when one was in their 30's was not so common back then. The other reason is that Thatcher said the West could win the Cold War in our lifetimes. She was right on that, as indeed she was on so many things.
The sum of human misery and suffering was vastly increased by Thatcher's time in politics, an unfortunate motivation for a political career in NZ
Thank you both, Chris and Wayne, for this very interesting discussion. Just two observations: if anyone thinks Wayne Mapp is a doctrinaire supply sider then they are deaf and blind. Second, we’ve had lots of Labour government since the days of Roger Douglas, all banging on about the “failed policies of the past” and not changing anything of note. My first campaign, supporting Tom Skinner in Tamaki, was in 1949: NZ’s material well-being is vastly better now than then - much of that is because of Roger Douglas and his colleagues.
Thanks Max.
Looking at the statistics for the past forty years, there's no question that median income is up a lot - almost double for most of the countries that embraced economic liberalism. Far more than that for those that were under centralised/ socialist type planned economies- Eastern Europe for example.
It's surprising that people believe quite the opposite - or perhaps observable reality is downstream from ideology for some?
I was talking to a small business person about Thatcherism – he'd been to England to visit relatives somewhere in the south and said there was lots of employment going and people were generally prosperous.
What he didn't say was that in the south of England there was and probably still is, a tranch of government subsidised defence industries that didn't exist in the north of England – where he hadn't been of course. Those industries and the fallout from them was what created the prosperity such as it was in the south. The North was blighted, probably because that's where opposition to Thatcher and the conservatives mainly came from. She was a vengeful woman.
Jesus David, when you going to come to the realisation that there are more options than "economic liberalism", and "socialist style planned economies".
Is it stubbornness? Or ignorance? I vote for stubbornness, because nobody is that ignorant.
https://www.youtube.com/watch?v=XDe7to7I_pY
https://www.youtube.com/watch?v=WfeCZ6TpWKs
It is a little sad that comedians tend to show more insight about economic matters than pundits, particularly right-wing pundits.
Post a Comment