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.