Tuesday 20 September 2022

The Drivel of Trussonomics

Liz Truss thinks she's still running in the Tory party leadership contest. Her media round with Sky News and the BBC made for painful watching. Painful because what she said spells bad news for our people.

Before the Queen's passing derailed politics, Truss had outlined the bare bones of her energy price freeze. An effective cap for most households of £2,100 and to be paid for, it seems, by government borrowing. Pressed in New York about the funding, she said we can expect the detail in Kwasi Kwarteng's statement this Friday. One supposes it wasn't sight of the figures that had him chuckling his way through the Queen's funeral. As such, Truss barely advanced on her previous arguments. Taxing energy price profits "discourages" investment, and that her proposed tax cuts for the rich - which were so extreme that even arch-Thatcherite Rish! Sunak opposed them in vituperative terms - would magic up economic growth. It's straight out of the blessed Margaret's speeches. Keep taxes low, businesses will invest more, more jobs are created, and all told more taxes flow back to the Treasury.

It's nonsense. Ignoring misleading accounts that measure investment by billions, during the 2010s investment has more or less stagnated. Investment by percentage of GDP is in long-term decline and has been since 1970. Historically, despite the narrative of the stagnant and uncompetitive 70s, investment was higher then that at any time subsequently, save the private building and privatisation bonanza of the late 1980s. Yet the very opposite was supposed to happen, if we accept Truss's argument as good coin. Thatcher slashed taxes for the wealthy, and the Tory-Liberal Democrat coalition followed suit. Using an identical justification, they cut the top rate of income tax, and since 2012 have whittled Corporation Tax down from 24% to 19%, where it has been since 2017. Far from winning more investment, there's a stronger case that evidence of the last 40 years reduces it.

Why? The answer is partially there in Truss's arguments: the route out of the crisis relies on putting money in people's pockets, but the evidence shows allowing business to keep more and more of the wealth we make for them is no way to grow an economy. Indeed, what the Tories have shown in stark terms is that profit is increasingly decoupled from economic growth, conventionally defined. Not-at-all coincidentally, this is related to the country's persistent productivity problem - which, in annual percentage change terms, mirrors the falling rate of investment. What we have seen under successive governments is profit-taking at the expense of investment. More money flows to shareholders, and instead of getting ploughed back into entrepreneurial activity it's salted away to the offshore tax havens. Only a comparatively small amount goes into luxury spending, and purchasing diamond encrusted wrist watches, mansions with multiplex cinemas in the basement, and tacky super yachts aren't going to stimulate economic activity anywhere near as raising wages or giving everyone direct cash payments would.

The best indicator of future behaviour is past behaviour, therefore no one should believe Truss's drivel about her tax cuts stimulating anything other than profits. It's no use saying Truss is wrong, either. Given the data available to her as a senior politician, she simply has to know her arguments are bogus - an awareness she shares with all senior Tories. What her "plan" is about is not providing jobs or raising wages or encouraging investment, it's to carry on the project her party has pursued since 1979: the uninterrupted transfer of wealth from our class to theirs.

Image Credit


Robert Dyson said...

Yes. Will the next step be to abolish elections? Otherwise the Tory Party is on route to destroy itself (a public good).

Old Trot said...

Nowadays the ever greater open corrupt selfish banditry of the capitalist class (enabled via their political hirelings) in the UK reminds me increasingly of that old skill game with rods or straws, known variously as Pick-up sticks, pick-a-stick, jackstraws, jack straws, spillikins, or spellicans. The object of the game is for each player to try to remove a stick from an unstable pile, without collapsing the entire heap. It seems to me that since the start of the Reagan/Thatcher neoliberal counter revolution in the late 1970's onwards (against the post war economic/political consensus of highish taxes and, in the UK and Europe at least, high public ownership , high state intervention in the economy , and free health care, and high trade union membership) , ever more of the 'social wage' contributing components of a civilised civil society have been slowly privatised, and underfunded, and wealth transferred to the rich from the majority . With the general public, as in the 'slowly boiling the frog' analogy , unaware that their civil society support framework is being steadily eroded. We seem surely to have finally got to the stage where, with the current ever-accelerating inflationery cost of living crisis, and an NHS in ruins, and only food banks keeping millions fed, that the entire edifice of our civil society, and hence future rule by general consent, must be approaching breaking point. I think dire, tumultuous times in UK politics lie ahead - and the crazed economic illiterate Ayn Randist politicians now in charge (implementing an entirely pro the rich agenda with no electoral mandate at all), will tip UK society into very deep political waters indeed come winter and beyond. And Starmer's NuLabour 2 Thatcher/Blairism will have nothing to offer as a constitutional route out of this disaster.

Blissex said...

«what she said spells bad news for our people»

The “bad news for our people” have been coming for 40 years and counting, thanks to massive upwards (literally several trillions of pounds) via booming housing costs.

«With the general public, as in the 'slowly boiling the frog' analogy , unaware that their civil society support framework is being steadily eroded.»

A large chunk of the general public is very aware that their properties are making them massive profits, entirely redistributed from the lower classes, and those huge profits more than compensate them for lower wages, meaner pensions, shrinking social insurance, worsening public services, that therefore are somebody else's problems.

The thing about property is the enormity of the profits from redistribution: for someone who bought a property at a price 3 times their wage 20-30 years ago, and that now has a price 9 times their wage, an increase in the property price of 5% is equivalent to a 45% increase in their wages, and that has been happening almost every year for 40 years.

«a 79-year-old retired carpenter in Cornwall, who bought his council house in Devon in the early 80s for £17,000. When it was valued at £80,000 in 1989, he sold up and used the equity to put towards a £135,000 fisherman’s cottage in St Mawes. Now it’s valued at £1.1m. “I was very grateful to Margaret Thatcher,” he said.»

For many property owners the profits they get entirely redistributed from the lower classes amount to dozens of thousands of pounds every year, tax-free too, not just work-free (for them). Relatedly in the past year property prices and rents have been booming rising by 15%, way ahead of inflation, increasing much faster than energy bills.
"Blow you! I am alright Jack." is their well practised point of view.

Why should "Middle England" voters be less than very content with thatcherism?