Can Liz Truss Do It?

This morning, I’m reading about the economic plans coming out of the British government. Already, a number of observers have described so-called “Trussonomics”—i.e. the economic program offered up by the new Prime Minister, Liz Truss, and her chancellor, Kwasi Kwarteng—as a an “assault on economic orthodoxy” that demonstrates a “radical shift” toward a more “carefree attitude” about public debt.

The full details of her economic program are expected to be known tomorrow, when the government releases its “mini-budget.” Among other things, we expect the budget to include a cut to the stamp duty, a cap on out-of-pocket energy expenditures for consumers (energy companies will be paid full price), and sweeping tax cuts.

Some have decried “Trussonomics” as nothing more than a return to the failed “trickle-down” economics of the Thatcher years. Gillian Keegan, one of Truss’s ministers, disputes that claim:

You cannot say what we’ve done is trickle-down economics. You know, we’ve just put a massive package in place, which the chancellor will outline the cost of that and how we’re going to deal with that.

But it is massive, the package we put in place to make sure that we support people at this time. So if you look at the definition of trickle-down economics, that definitely does not fit it.

“There’s no way you could describe our approach as trickle-down.”

The bit of her comment that’s raising eyebrows is the part about how they’re going to deal with the (fiscal) cost of implementing the economic program. Ordinarily, the plan would be scrutinized by the Office for Budget Responsibility (OBR), something akin to the Congressional Budget Office (CBO) that evaluates proposed legislation in the US. But as Larry Elliott reports, “the chancellor has sacked the Treasury’s top mandarin and has decided not to subject his “fiscal event” to the scrutiny [of the OBR].”

This is part of the reason “Trussonomics” is being interpreted as breaking from the fiscal orthodoxy. But is it really any different from what conservative governments always do—i.e. push through some deregulation and tax cuts and downplay or ignore the resulting budgetary impacts? Or am I missing something? These are the two articles that have my wheels turning.

I’d certainly like to believe that we’re witnessing a radical break from the fiscal orthodoxy. And from the Reagan-Thatcher mantra about governments being unable to solve problems because governments are the problem. After all, overturning the failed orthodox was pretty much the whole point of my book. But what I’ve seen so far doesn’t convince me that such a transformation is underway. Truss but verify, I guess.

Elliott sees at least the potential for a meaningful shift at hand:

In reality, only a government of the right could contemplate what Truss is doing. No Labour administration would dare say its economic plan was to boost growth by borrowing hundreds of billions of pounds, for fear that the financial markets would throw a hissy fit. Just as only a rightwing Republican president, Richard Nixon, could risk making overtures to Beijing in the early 1970s, so the attack on Treasury orthodoxy is easier for a self-styled Thatcherite.

Yet, the intellectual and political climate has changed since Thatcher came to power during a previous energy crisis in the late 1970s. Back then, a strong pound and high inflation were making life hellishly difficult for Britain’s manufacturers but Thatcher showed scant interest in bailing them out. Firms were left to sink or swim, with the strong surviving and the weak going out of business. Thatcher’s intention was to wean the country off the idea that the state should be expected to solve every problem.

That philosophy has not survived the double-pronged crisis of the past two and a half years: first a pandemic and now rocketing energy bills. The government responded to the first with the furlough and a raft of business support, and has now come up with the biggest package of state support for the economy in peacetime to deal with the second. Leaving households and businesses to cope as best they could was never an option for Truss. The argument at Westminster is not about whether there should be government intervention in the economy, but how big the intervention should be and how it should be funded.

Let’s see what tomorrow’s mini-budget looks like. At this point, I don’t see how they’ve got a feasible plan to carry out their economic agenda for reasons that Richard Murphy and I have been discussing over e-mail this morning. Follow Richard on Twitter and you’ll soon have a long thread that details his thinking. As Richard will explain, Trussonomics cannot succeed without a full-throated break from the fiscal orthodoxy. And for that, she’ll need The Lens of MMT.