The ghosts of Britain’s economic crises bygone are rearing their ghostly heads. It brings back memories of the ill-conceived and ill-fated “attempts at growth” under Conservative Chancellors Reginald Maudling in 1962-64, Anthony Barber in 1972-74 and my old friend Nigel Lawson in 1988-89.
Yes, they too were Tory Chancellors. They usually are. When Gordon Brown, Labor Chancellor from 1997 to 2007, was reported as promising “no more boom and bust”, he was teased and widely misquoted. What he insisted he actually said was “no more Tory boom and bust”.
These growth efforts were well intentioned and had in common that it took some time before they were seen as a failure. But Liz Truss-Kwasi Kwarteng’s drive for growth is something else: it was launched by two of the most arrogant politicians the fate of the British public has had to endure, and it looks like it was brought to a halt when it did has barely started.
Kwarteng’s and my paths have crossed only occasionally. Our encounters were reasonably civilized, but I had a taste of arrogance when, a few years ago, as a judge on books on financial history, I decided unanimously that this year’s award should go to a rather brilliant volume by Liaquat Ahamed on the top central bank governors of the 1920s and 1930s titled Lords of Finance.
Kwarteng bearded me and asked why he didn’t win the award for his book on gold. Well, there were different answers to that, but one was that the book wasn’t good enough. Well, I was told by contemporaries at Eton that Kwarteng was considered absolutely brilliant but undoubtedly arrogant.
Arrogance is a classic fatal error of Aristotle. Rarely has the blunder been more publicized in recent times than when, following the apparent disaster of receiving his “tax event” on September 23, the FT headline last Monday screamed: “Kwarteng promises more tax cuts as Tory struggles to Sterling fears rally.” We were told that Kwarteng had vowed to redouble his tax-cut efforts despite investor nervousness, “leaving Conservative MPs and market traders primed for more turmoil”.
And turmoil ensued when the Bank of England had to intervene to buy gold-rimmed government stocks on Wednesday in an attempt to quell a rather dramatic loss of confidence in the government’s “growth” policy of borrowing to cut taxes for the wealthy finance. while poor children are discovered on their way to school with empty lunch boxes.
This is a naked redistribution of income from the poor and the rest of society to the rich, without any evidence that this has a positive impact on the rate of economic growth, as shown by a series of recent studies by the IMF, OECD and respected think tanks Has.
The Truss-Kwarteng farce is bad news for the pound. As sterling fell towards parity with the dollar in January 1985, Margaret Thatcher called her friend Ronald Reagan and the US supported the pound. I don’t think the relationship between Joe Biden and Truss is still on such a footing should the need for help arise again.
The financial markets saw through Truss and Kwarteng. Her desire to increase economic productivity was also shot in the foot by her own Brexit
The need to maintain or restore financial stability is one of the main tasks of the central bank, along with trying to control inflation. The paradox last week was that the bank announced its intention to raise interest rates to counter inflation – ie contractionary monetary policy – while its much publicized intervention needed to inject liquidity into the financial system – ie monetary easing – in the interest restoring financial stability.
Trying to swim against the tide of sound economic opinion and the views of the financial markets they believe in, Truss and Kwarteng complain about “Treasury orthodoxy”. But as Ed Balls, who was a key figure in granting the bank independence in monetary policy 25 years ago, points out, there is nothing wrong with the Treasury Department’s orthodoxy. It allows for higher/lower spending; higher/lower taxes; more/less fairness; more/less interventions in response to major shocks – the more or less to be decided by the government of the day.
The financial markets saw through Truss and Kwarteng. And let’s face it: their desire to boost the productivity of the UK economy was shot in by their own Brexit and its 4% to 5.5% reduction in annual GDP (estimated by the National Institute of Economic and Social Research). get the foot. .
On this issue, while congratulating Keir Starmer on a successful Labor conference, I stress that despite his recent slogan, there is no evidence that Brexit can work. Brexit is a disaster and the Labor leader should say so. It’s an open goal.
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