The U.K.’s new prime minister,
has an ambitious plan to revive her country’s flagging economy. It’s the only plan any British politician or economist has been able to offer that has any shot at success. It also very likely won’t work, alas, and mostly through no fault of Ms. Truss. Here follows a morality tale about modern economies and the modern political right.
The U.K. for years has suffered a productivity crisis, often delicately referred to as a “puzzle.” To the extent Britain’s economy has grown over the past decade, it has done so mainly because a higher share of the population was working, not because people were working more productively. This is an investment problem created by big government and accompanying taxation and regulation.
And hurrah, Ms. Truss seems to get it. Her economic plans are laser-focused on unleashing new business investment to accelerate growth of gross domestic product—a 2.5% annual rate is the stated goal.
Ms. Truss is right to want to limit taxation. Her new chancellor of the Exchequer,
is due on Friday to deliver a policy down payment on Ms. Truss’s agenda with tax-rate cuts. Mr. Kwarteng will scrap a 2.5-percentage-point increase in payroll taxes imposed by Ms. Truss’s predecessor,
Ms. Truss and Mr. Kwarteng also will cancel a planned increase in the corporate tax rate to 26% from 19% to avoid any further deterioration in incentives for business investment.
Ms. Truss also shows signs of understanding that supply-side economics is about more than tax policy. Bad energy policies have come to constitute a form of tax. Western countries’ net-zero-emissions fancies drive up energy prices for households and businesses. Ignore here the subsidies Ms. Truss’s administration unveiled this week to moderate businesses’ bills. The real progress is her renewed interest in bringing new energy supply to the market via natural-gas drilling in the North Sea and perhaps even shale fracking in England.
There’s just one problem: British voters don’t seem to be ready for any of this.
wasn’t starting from scratch when she became prime minister in 1979, and neither was
when he was sworn in as president in 1981. Thatcher became Tory leader four years before the party took power; Reagan first made his pitch to a national electorate with his failed presidential run in 1976. It took years of arguing their case and considerable political effort after their elections to persuade voters to attempt a radically different economic agenda.
Ms. Truss, in contrast, now finds she has inherited more than an economic fiasco from her Tory predecessors. Not only did Mr. Johnson leave behind an economy running at 9.9% inflation that is expected to be the worst performer in growth of any major economy next year. He also left Ms. Truss a party that has become wedded to his brand of big-government conservatism and a national electorate that has not for many years heard anything else from the Tory leadership.
Perhaps the Tory rank and file that elected Ms. Truss is ready for a big change, but it’s a worrying sign that she wasn’t the first choice even of a plurality of her party’s lawmakers when they whittled down leadership contenders. It’s a problem that most of what voters hear of supply-side economic principles comes from a British media that treats them as some sort of exotic (and, they reckon, primitive) religion. This unfortunately includes no small number of right-leaning outlets.
Some of the biggest drags on the supply side of Britain’s economy, such as the National Health Service with its propensity to devour resources while producing terrible health outcomes, remain politically untouchable. A trade deal with the U.S. remains unobtainable in part because Britons seem baffled that they might need to abandon some agricultural protectionism to negotiate one.
All of this exposes a Tory Party that isn’t just unwilling to argue unreservedly for economic growth after its time with Mr. Johnson, but has entirely forgotten how to do so. This isn’t a knock on Ms. Truss, who is doing the only thing anyone could do under the circumstances: Move fast and break as much of the old economic orthodoxy as she can manage.
Rather, it’s a warning to parties of the right everywhere else. Many of them, including America’s Republicans, have been happy to flirt with a big-government agenda, hoping to combine their reputation for economic competence with the electoral warm-fuzzies that come from throwing around large quantities of taxpayer cash.
They forget that the reputation for competence is built by patient explanation to and persuasion of voters in service of policies that demonstrably work. Neglect that and they may find it difficult to execute the kind of economic turn they require when they need to convince voters that conservatives know how to get a country’s economic mojo back.
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