Explaining LIz Truss

 

NOBODY, BUT NOBODY SEEMS ABLE TO EXPLAIN THE LIZ TRUSS AFFAIR. It’s easy.  Britain has inflation almost as high as ours.  Their central bank, Bank Of England, like our Fed dithered when it started.  And the British govt spent a lot on aid due to lockdowns which set off the inflation.  The Conservative party tossed their leader, Johnson, over scandals.  They elected (only party officials vote) Liz Truss.  She was insistent on a Reaganesque revival—low taxes, lower regulations.  But that is only half the equation when you have too much money and too few goods.  Less taxes/regs help the economic gains which will provide more revenue dollars eventually, but the Brits want no part of reducing too much money.  They like their welfare state and don’t want cuts in govt spending. And BOE waffled to take the hard steps in tightening the money supply.  So the pound is cheap, has gone lower, from $1.20 per pound to about $1.15.  The announcement of lower taxes without anything else, caused the pound to plummet on markets to about $1.06.  That means the banks would get loans paid back in cheap real costs, and lose money.  And international banking is a huge industry in London where the Conservative party has it’s greatest strength.  The howls were immediate from the elites of the party and they ran her out of the prime minister job.  She tried to stem the problem by announcing that only the lower taxes to the poorer classes would be in her program, cancelling the upper bracket cuts.  She fired her finance minister.  But in the end, she was drummed out of office and she resigned today.

            If our media people understood the fundamentals of how inflation must be fought, they would have been able to tell this simple story.  Instead they carry all the tit-for-tat and commentary from Britain and Brit migrants on our tube.  

            Reagan had a similar trouble selling his low taxes.  Everybody said it would result in more deficits. But he included de-regulation, and the fed had raised interest sky-high, to 18%.  In the end, RR’s borrowed idea from Laffer of getting more revenue from lower tax rates (because people were hiding their income from taxes) actually worked and worked in spades to the chagrin of Democrats and astonishment of establishment R’s who had called it Voodoo economics. The name Reaganomics was meant as a slur by the media and Dems.  Instead it became a rallying cry for R’s even down to this day.