Truss29 Sep 2022 19:13
“For the past 25 years, and especially since the financial crisis, the global economy has taken a disastrous wrong turn for which we are about to pay a hideous price. In one of the gravest intellectual errors since communism, many of the world’s cleverest people thought they had discovered the secret to perpetual prosperity. Forget about hard work, deferred gratification, tackling post-industrial wastelands or actually earning one’s keep by creating, building and exporting: there was an easier way.
Cheered on by politicians, central banks kept interest rates low, favoured borrowers over savers, printed money with abandon and engineered an artificial boom in house prices, tech firm stocks, crypto-currencies, bond markets, art and more. This ersatz “wealth” was meant to encourage spending and investment, the tax receipts would fund a generous welfare state, low rates would allow rising government debt, and there would be no need for difficult conversations on ageing, science, tax, competitiveness, incentives or productivity.
This madcap experiment is now ending, killed off by a money printing overdose from Covid, the supply-side dislocation that accompanied the virus and the attempt to put the economy into a coma, and Putin’s war, all of which sent consumer prices rocketing. The necessary transition from cheap to rational money will be traumatic and could trigger a vicious global recession, higher unemployment and bankruptcies. Long-term mortgages are already at 7.1 per cent in America as the old order crumbles, and financial markets are in turmoil worldwide.
This is the context for the punishment beating meted out to Britain. The readjustment that every other country will also undertake – especially much higher borrowing costs – has taken place in accelerated form in the UK, triggered by the financial markets’ ridiculous reaction to the Budget. The pound has fallen disproportionately. Some pension funds were caught out, forcing the Bank of England to intervene.
It is easy to see why the Chancellor didn’t predict such a response. When it comes to fiscal impact, the overwhelming bulk of the policies announced had already been trailed, and the cost of the energy bailout looks a lot lower. Spending is being cut already because inflation is depressing public sector wages, and fiscal drag continues to do its dirty work.
This was an ideological, visceral reaction to a Government financial institutions don’t properly understand. The elite mood music in 2022 is set by Left-wing American economists and a hysterical Twitterati that loathes Truss, Brexit and supply-side economics. It is desperately important therefore for a Government that rightly wants to smash the orthodoxy to be a lot more proactive in explaining how it will grow the economy and stabilise the public finances, and how Middle England will be better off.
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