The Oldest Trick in the Book
Cut taxes. Cry Broke. Defund the public sector.
Now that we have seen the so-called “mini-budget,” there is plenty of speculation about what comes next. As a reminder, the Truss/Kwarteng budget, which was reportedly “fleshed out with senior aides over coffee and biscotti in Truss’s living room in the third week of August,” is a huge gamble on supply-side economics. And it’s only the beginning.
The next shoe to drop comes later in the year when the rest of the government’s fiscal plan is released. With the mini-budget roiling currency and bond markets, many observers expect Truss and Kwarteng to announce massive spending cuts to the public sector in order to “restore market confidence.” If you remember anything about the Reagan era and David Stockman’s playbook, then you know how this game is played: (1) push through massive tax cuts that disproportionately benefit the rich; (2) claim the tax cuts will “pay for” themselves through higher growth; (3) watch the debt and deficit soar; (4) clutch pearls; (5) demand cuts to public programs as the only alternative (TINA).
Already, some economists are asking whether the mini-budget should be viewed “a Trojan horse for a massive attack on the welfare state.” Such an attack would be politically unpopular. Unless, of course, it could be carried out under the cover of TINA. The economics editor at The Spectator, has speculated that the mini-budget will push the Bank of England to hike interest rates even more aggressively. If they do, she says it might be “a design feature, not a design flaw, of Truss’s plan.”
It might sound far-fetched, but as Professor Gabor of the University of West England, Bristol notes, “borrowing requirements would fall a lot if say, UK government [were to] announce a massive cut in NHS spending, education, no net zero, privatisation of strategic assets (NHS again) to contain pressures on sterling/gilts.”
PS Don’t miss the last paragraph in the article above. And then—if you can navigate the paywall—read this. You’d be forgiven for being tricked into believing every word.