Politics and the economy
It seems such a long time since our governments (well the left-wing ones anyway) were steering us deftly through the pandemic?
Sure – there were a few glitches – ‘transitory’ inflation for one. But there was a catch-all explanation – supply chain disruption. And normal service would be resumed shortly.
But like most comfortable explanations, there seems to be a little more to it than that.
Continue reading “Supply chains are the least of it – labour markets signal change”
The MPs of Britain’s ruling Conservative party don’t lack confidence.
Having defenestrated PM Liz Truss, the choice of the non-Parliamentary party as leader, they decided to take no more silly risks, and installed their own choice, former Chancellor Rishi Sunak, without troubling to consult the membership.
Time will tell if the members thank them.
Continue reading “Just don’t call it creative destruction, Rishi”
It is perhaps unfortunate that the UK’s Conservative party MPs have never thanked the party members for saving them from the disaster of Theresa May’s premiership.
Perhaps they weren’t even grateful, seeing how quickly they recoiled at the members’ choice of Liz Truss. Truss – who announced on Thursday she would step down – wasn’t even given enough time to dig a shallow grave, in contrast to May, who was indulgently permitted to erect an elaborate mausoleum and find out that no-one else would join her there.
Despite the buffeting, politicians in recent years have done a surprisingly good job at seeming to be in charge. Of course the markets and central bankers have helped them out a bit.
So it will have come as a shock to Britain’s PM (for now) Liz Truss, that things could fall apart so quickly, and so very comprehensively.
Who would have thought a change of leadership in Britain could bring so many problems. Wait a little and PM Liz Truss will be blamed for an outbreak of bubonic plague.
Still it’s natural that the people responsible for the problems accumulated over the last decade – and accelerated during Covid time – are seizing the opportunity to pin the blame elsewhere.
Indeed, if you’re hoping it’s just a British thing you should be very worried by the growing number of prominent international centrists using this opportunity to burnish their own defences (see Larry Summers here and Jason Furman there) at the same time as putting in the boot.
The latest niggle is over the policies of Britain’s (boring, long-term, stable, highly-regulated) pension funds and their (boring etc) investments in government bonds. Those most eager to see the government’s incompetence in everything might ask themselves why an industry which deals in lifetimes is apparently having difficulty dealing with not-entirely unexpected short-term market fluctuations.
They might even get the depressing vibe that all this is only the beginning of a torrent of problems, all demanding government attention – which really means money. (Yesterday’s announcement that Britain’s health service is bleeding out – even before the Truss government does – can be seen as the latest instalment in a never-ending saga.)
And which will all need to be paid for – as the markets reminded Truss.
The irony of Truss trying to get ahead of the problems but instead being sandbagged by them is well covered by Allister Heath in Britain’s Daily Telegraph. But amusing visibility hasn’t made them easier to deal with.
So, like just about everyone else, Britain’s government is spending too much; it’s also taxing too much but still not enough to stop debt growing. Interest rates going up will make the problem worse, while hammering the living standards of mortgagors; but the lure of more directed credit will eventually hammer growth.
Meanwhile, low levels of growth in output and living standards look like getting worse. But governments have spent years encouraging distortions which are now revealing their destructive potential – substantial decreases in the productive labour force post-Covid; a growth in union militancy; business investment driven by cosy regulatory partnerships rather than market opportunities. It has reached the stage that when the market delivers a rare positive shock, as with some energy producers, the first and loudest cries are for a windfall tax.
Any challenge to this status quo was bound to generate howls from the many craving protection or other privileges. But it was less predictable that it would generate civil war in Truss’s own Conservative party.
Because surely the milk can’t be unspilt. If the government limps back to the current orthodoxy, they risk becoming a less-convincing version of the Labour party.
But the task of imagining – let alone creating – a growth coalition has been shown to be daunting.
Working people need to be brought to the realisation that otherwise the future looks like more taxes and worse services. Right now many cling to the hope that a few more rules and a few more taxes on a richer neighbour might do the job.
Business will only come on board when it makes more reliable long-term profits by taking risk, than from closing it down by regulatory collusion.
Beneficiaries ranking low in the priority of the orthodox woke will need to understand that their votes are more valuable elsewhere.
And realistically these changes of outlook will probably only come as the wreckage of existing policy drifts ashore.
The recent dramatic changes in the cost and difficulty of securing carbon-based energy have, for example, served to bring into clear focus the even greater costs of marching to a bureaucrat’s carbon-free specification. Some are even starting to understand that on current trends such a policy means a real decline in the quality of life (it’s one thing to imagine living car-free; another to have it imposed by London’s current mayor).
Perhaps the Truss government needs a string of global economic disasters to start making its points for it.
We can be confident that Vladimir Putin and a few other folks will be looking to help out on that one.
Real change can be a profound shock.
One response is to hunt for the trigger. Another is to point out the contrast with past ultimately-failed efforts to shore up the status quo (and marvel at all those ‘total overhauls’ of the deckchair sector).
This could be a useful framework to examine the ferocious response – both from the political establishment and the British public – to the Truss government’s start of a real overhaul.
Continue reading “Shortest tax cut in history a harbinger of our own future political difficulties?”
All European elections are about Europe.
That’s one conclusion which might be drawn from the decimation (a fine Latin term that) of Italy’s governing class – and also the election of a centre-right coalition government – last Sunday.
To understand more, recall the previous election in 2018. That also turfed out the ruling establishment (and again in 1994, where Italians opted for the fresh and untarnished Silvio Berlusconi, if your memory can bear going back that far).
Last time, the two biggest and newest parties – the right-populist League and the left-populist Five Star Movement – joined in an unstable coalition.
Continue reading “Brotherhood of Europe but Sisterhood of Italy”
Britain’s new PM, Liz Truss, might have caught a break last night.
The International Monetary Fund, after a longish period of complaisance in regard to fiscal stimulus, abruptly decided that the Truss economic plan was a good point to draw a line, in part because giving people their money back was seen as untargeted and might increase inequality.
But in being so unusually prompt and decisive, it has missed a chance to wait and see which way the wind blows.
Is the new approach to economic policy of the Truss government important. Well, just look at the overreaction.
“It has been extreme” says the mild-mannered Tyler Cowen, who goes on to add:
“I certainly can see reasons why one might oppose the plan, but the skies are not going to fall.”
Criticism from many of the government’s opponents can be dealt with relatively briskly – it’s usually easy enough to pick out contradictions in their own recent testimony. Cowen again, with admirable restraint:
They suspected that they might be electing a radical, but to their great surprise, Britain’s Conservative party members found out on Friday that they had also elected a party leader who meant what she said.
British politics may take a little while to recover.
New finance chief Kwasi Kwarteng delivered a package outside the parameters of fiscal orthodoxy, headlined with big personal and corporate tax cuts and some scary debt projections. Certainly the Treasury advice could be summarised as ‘you’re on your own, mate’. But then smart ministers know that anyway.
Point of Order 