Newly installed United Kingdom Prime Minister Liz Truss is betting on ‘Reaganomics’ to help her country escape the dire economic and energy situation facing Europe. If it works, it could be fantastic news for North Carolina and the United States and an example of how free markets and tax cuts can help countries prosper.
‘Trussonomics’ is what they’re calling it. It’s a rather risky plan to slash taxes, invest in energy production (the non-green kind), and a variety of other measures designed to stimulate economic growth. Though the plan may increase the debt the UK carries, in the long run Truss and her government believe that it will fill the coffers if the country can hit 2.5% in GDP growth.
Most aren’t so sure that her plan will work.
“The idea that further tax cuts and deregulation (such as lifting the cap on bankers’ bonuses) will transform this performance is a fantasy,” said Martin Wolf, the chief economics commentator for The Financial Times. “What is simple has already been done. What is left is hard to do. To take one example: higher investment requires higher savings. From where are these to come? There are also the linked complexities of climate change and energy.”
The British financial markets are already in turmoil due to the economic changes.
The most notable is the fall of the British pound sterling, which hit a record low against the dollar this week. In 2003, when I first visited the UK, the pound was almost double the American dollar. Now the difference is merely pennies.
Though the currency has stabilized, the markets remain in turmoil, especially in the housing section. Given the likely need to increase interest rates, UK mortgage lenders are pulling hundreds of offers from consumers in preparation.
Investors remain spooked about the country’s rapid economic about face and what it could mean for the future of the country, but Truss has said that she doesn’t mind if her policies make her unpopular. And, in the end, it might be the best thing for the British economy.
In an op-ed appearing in The Daily Mail, Truss said, “We are now delivering by taking tough choices and doing things differently. For years, our economy has not grown as much as it could and should. Instead, we will usher in a decade of dynamism by focusing relentlessly on economic growth.
“We have a clear plan to build an ambition Britain, where everyone everywhere can realise their potential. We will make good on the promise of Brexit by seizing our chance to take the shackles off our economy and become a more enterprising, low-tax nation rich in opportunity.”
In the United States, we’ve seen how government restricting businesses and blowing out spending has a deeply negative impact on the economy. The latest GDP numbers show another quarter of negative growth, making it more difficult for the government to deny that the country is officially in a recession.
A change in direction is needed, and a rather radical one to get the economy back on track. The latest Civitas Poll shows about 50% of North Carolinians are worried about gas, food and housing. At this point, it doesn’t seem like there’s an end in sight to the suffering—and the Biden administration seems unwilling or unable to adjust their failing economic policy.
Though the market shocks the UK is experiencing are initially difficult, if the pound doubles against the American dollar in a couple of years, it will prove that free markets and pro-business policies work.
