Thursday, October 20, 2022

wow, that was fast!

 

Liz Truss just resigned from her job as the British Prime Minister. Her tenure in office was a mere 45 days, making her time in office of any Prime Minister in U.K. history going all the way back to 1721.




A disastrous series of self-inflicted wounds — which turned into a political death spiral — began with a misfired attempt by the Conservative Party leader to radically reorient the government’s economic agenda by slashing taxes without saying how the decision would be paid for. It sent the markets reeling, and Truss never recovered.

By the end of her tenure, according to YouGov poll, Truss’s net favorability stood at minus 70 percent. If that figure had continued its downward slide, she would have been on track to overtake Russian President Vladimir Putin, who has a net favorability rating of minus 84 percent among members of the British public.

Truss became prime minister on Sept. 6 after being elected by members of the Conservative Party to replace Boris Johnson as their leader. Her first two weeks included the death of Queen Elizabeth II and were politically muted while the country entered a period of mourning.

 

But on Sept. 23, her finance minister, Kwasi Kwarteng, made a fatal misstep: Without any warning, he unveiled a significant shift in the country’s economic strategy, promising to slash taxes for the highest earners and biggest corporations — with no plans to pay for it.

 

Almost immediately, the British pound’s valuation tanked, the United Kingdom’s central bank was forced to hike interest rates, and the cost of taking out mortgages soared. Inflation — already at record highs — raised the cost of living further, shredding the Conservative Party’s reputation for fiscal responsibility. Some working-class voters who were drawn to Conservatives by their embrace of Brexit were turned off by a renewed sense that the party represented only the interests of financial elites.

 https://www.washingtonpost.com/?reload=true&_=1666280117667

Of the 56 Prime Ministers who have served during that time period, 22 left office because they had resigned.

The most interesting character in the long list of Prime Ministers is Winston Churchill, who served two terms. The first term was from May 10, 1940 to JULY 20, 1945. His second term was from October 20, 1955, to April 5, 1955. Although he technically resigned in April of 1955, he remained Prime Minister until 1964, and was given a state funeral upon his death in 1965.

Even though Churchill was instrumental in defeating the Nazis, his Conservative Partly lost in the 1945 general election.

Since 1950, Truss’s Conservative Party has won 11 out of 15 elections, including the last 4. The Labour won the other 4.

 Like the U.K. the United States has alternated between conservatives (the GOP) and liberals (the Democratic Party). Ever since Ronald Reagan’s first term in office, the GOP has operated on the assumption that tax cuts (primarily for the reach) would lead to economic growth. However, if you analyze the effect of the tax cuts, you’ll realize that “trickle down economics does not make sense.

 In December 2017, just days before President Donald Trump signed the $1.9 trillion tax legislation that would create sweeping changes to the U.S. federal tax system, he told television viewers that “it’s going to be one of the great Christmas gifts to middle-income people.”

For several months, the president had been selling the legislation on the claim that the tax cuts would “be rocket fuel for our economy.” His claim was critical to defending against the criticism that most of the tax cuts would go to corporations and the very wealthy—supposedly, the money would ‘trickle down’ to the middle class.

The president and administration officials, often echoed by Congressional Republicans, claimed that as a result of the tax cuts: • Business investment would jump. • GDP growth would skyrocket to between 4 and 6 percent.  • Household incomes would increase between $4,000 and $9,000. • Job growth would accelerate. • The tax cuts would ‘pay for themselves’—adding nothing to the federal debt, or even reducing it.

These claims were not the president’s invention; they originated with and were repeated by the most senior economic policy experts in his administration. Kevin Hassett, then the chairman of the president’s Council of Economic Advisers (CEA), said that the median wage increase for workers due to the tax cuts could amount to $20,000 per year. Treasury Secretary Steven Mnuchin said that “not only will this tax plan pay for itself, but it will pay down debt.”

Gary Cohn, then the director of the National Economic Council (NEC), said that “we can pay for the entire tax cut through growth over the cycle.” Larry Kudlow, the second director of the NEC, claimed that “the deficit…is coming down, and it’s coming down rapidly.”

Other economists were highly skeptical of these claims.

Jason Furman, chairman of the CEA during the Obama administration, said that the White House claim of up to a $9,000 increase in household income due to corporate tax cuts was “more than a little far-fetched.” Austan Goolsbee, another former chairman of the CEA said that the administration’s “trickle-down, magic-beanstalk…argument” was “nonsense.” Former Treasury Secretary Larry Summers said that he “would be hard pressed to give [the administration’s tax analysis] a passing grade.”

Two years after the tax cuts were enacted, evidence clearly shows that the critics were right. Overall, the economy is not outperforming solid trends that predated implementation of the tax cuts and were inherited from the Obama administration.

GDP growth has averaged 2.5 percent — exactly the same as the average in the quarters before the tax cuts, and nowhere near the 6 percent promised by the president. • Business investment, which is essential to a stronger economy, lags substantially behind the average of the quarters that preceded the tax cuts.

Household income increased only $550 in the first year after implementation of the tax cuts—far behind the previous three years and not close to the $4,000 to $9,000 or more per household that the administration had claimed.

The Congressional Budget Office now projects that the 2017 tax cuts will increase the national debt by $1.9 trillion over 11 years.15 The tax cuts are not remotely on track to ‘pay for themselves.’

As a result, policymakers in the future may be pushed to make cuts to programs that are critical to middle-class families, like Social Security and Medicare, and forgo crucial investment in infrastructure and education that are essential to sustainable economic growth.

In addition, the almost $2 trillion hole in the budget may make the economy more vulnerable to the next recession because it will be far more difficult for Congress to find the will and resources to pass the fiscal stimulus necessary to jump-start the economy. This is especially concerning given that the Federal Reserve has less ability to fight the next recession because it cannot implement large rate cuts to stimulate the economy.

As a result, it is crystal clear that the 2017 tax cuts have not remotely achieved the economic miracle that the Trump administration promised. While die-hard defenders of the tax cuts likely will claim that the greatest benefits still lie in the future, the current trends suggest that those benefits will never be achieved and that the rationale for the tax cuts was unsound. By the time the experiment has fully run its course, Americans will already have paid a very steep price.

 

https://www.jec.senate.gov/public/_cache/files/4150f60c-56af-4b6a-8f0e-fb0b34aafed8/tax-cuts-fail-to-deliver-promised-economic-boost.pdf

The resignation of British Prime Minister Liz Truss on Thursday morning puts an end to a month of economic and political turmoil. Republicans should take note of her mistakes if they want to avoid a similar debacle after the midterms and in 2024.

Truss’s first mistake was to push a radical economic agenda she did not campaign on. Her personal views supporting a low-tax, smaller government were telegraphed years ago in her book, “Britannia Unchained.” But she did not campaign for the premiership on that agenda. She had promised some modest tax reductions and offered rhetorical backing for deregulation. But those were far short of the sweeping tax cuts she and her chancellor of the exchequer unveiled in their now-infamous mini-budget proposed in late September.

 

Failing to prepare public opinion for her proposals meant there was no widespread support for them in any segment of British society. Conservative MPs who championed fiscal stability were gobsmacked at the prospect of widening deficits as far as the eye could see. The broader public backed more spending and taxation, not less. And investors who had made calculations about the British economy based on her public statements were blindsided, sending interest rates soaring and pushing the pound to historic lows.

 Republicans are at risk of making the same mistake if they retake control of Congress. The GOP’s midterm messaging focuses on inflation, crime and immigration, but the party is not telling the public much about what it would do to combat those ills. That might be good politics, but it also means they would have no mandate for significant departures from the status quo. Using the national debt limit next year as leverage to force significant spending cuts, including to Social Security and Medicare, as has recently been rumored, would be as politically disastrous for the GOP as Truss’s supply-side tax cuts were for the Tories.

 

https://www.washingtonpost.com/opinions/2022/10/20/truss-resignation-british-republicans/

 

 

 

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