The snoring continues to come for the new British Prime Minister and Chief of Finance.
A few days after entering their new jobs, Liz Ross (Prime Minister) and Kwasi Quarting received a barrage of criticism for introducing some new economic policies including tax cuts.
But critics seem to have gotten the wrong end of the stick.
The broad plan in the Truss-Quarting government is simple – follow in Reagan’s footsteps in the early 1980s to control inflation and boost economic growth. To do this, the central parts of the so-called mini-budgeting are tax cuts and relaxed regulations. These include eliminating the highest personal income tax rate of 45%, and reversing a previous decision to increase corporate tax from 19% to 23%.
These moves prompted the International Monetary Fund, often considered the global lender of last resort, to demand that the government scrap the tax cuts.
The UK opposition leader, Sir Keir Starmer, has called on Parliament to
e was called and the proposed budget was completed.
There have been many other similar calls from agitated individuals and organizations.
The problem is that there seems to be little basis for these criticisms.
Courting and Truss follow US President Ronald Reagan's leader and Federal Reserve Chairman Paul Volcker, who together crushed inflation and sparked the economic boom of the 1980s. It continued through the 1990s as well.
Reaganomics, as the policy mix came to be known, involved getting the government out of the way of business and corporations. To do this, taxes were reduced and regulations abolished. The result of so-called supply-side policies has given companies and individuals an incentive to work hard and lowered the barriers to success.
At the same time, in an effort to squash inflation, the Fed raised the cost of borrowing money to nosebleed levels.
The Truss-Kwarteng team appears to be emulating these policies. While last week's mini-budget mostly brings up the tax cut part of the plan, the reality is that the Bank of England will have to raise interest rates to defend the value of the British pound.
In other words, the government will have a tight monetary policy accompanied by a loose fiscal policy. Unless the laws of economics are undone, the result should echo those of America in the 1980s: a booming economy.