Liz Truss anyone?

You might think that Liz Truss was a completely busted flush, and you might well be right. I can’t help but think that bar one extremely stupid act – and a gross act of betrayal - she could now be astride a reinvigorated Tory party and Great Britain could be doing rather well.

Before you start shouting me down, let’s start with the act of betrayal. In case you don’t know, Andrew Bailey, he of the Bank of England, admitted that the Bank deliberately offered a huge amount of Gilts just at the point when the markets were jittery about “ unfunded tax cuts” that she and her Chancellor had announced. He did it deliberately (and remember he has said it WAS deliberate) because he didn’t like the idea of the policies she was espousing. If ever there was a gross act of betrayal, this was it. It was a bit like waiting until you see the whites of their eyes before you fire the cannon, with the market already in a bad place through the Banks ridiculous behaviour over pension funds problems, which, incidentally, were entirely produced by the Bank –The Bank – saying inflation was just a blip and they were not going to increase interest rates. It was those interest rate increases which destroyed the pension margins, because all the Gilts that the Bank had been stuffing pension funds with sank like a stone as interest rates went up and threatened the solvency of even the biggest pension funds. They even stuffed the Bank’s own pension fund. To be fair, those same pension funds clearly had economists working for them who had no idea what they were doing, as any complete idiot could see that interest rates would have to rise, not just to fight inflation, but to bring some kind of stability to what had become an unsustainable casino.

But I digress somewhat.

You are, I am sure, all aware of my admiration for Javier Milei, a liberal economist with rather more right ideas than most. He – like Liz Truss – slashed taxes (and lots of other things as well). He, however, knew that there has to be a balance in the Universe, and if you increase the deficit by cutting taxes you have to reduce the expenses to compensate. Unfortunately, Liz Truss didn’t do this, and that may be a direct result of the British inability to cut ANYTHING at any point in the process. This was her act of stupidity. Don’t forget she had already made plain what all the tax cuts were going to be. It’s probably why there is now an almighty crash coming which might result in the IMF turning up again (which would suit the poiticians as they could say “It wasn’t us, it was those awful faceless men from the IMF who cut all your benefits”)

A good comparison is with Greece, long the basket case incapable of sorting anything. It is said it would be cheaper to put every train traveller in Greece into a taxi rather than have the train take them anywhere. The IMF performed its magic some years ago (it’s no magic by the way, it’s called good economics) and Greece currently has robust growth, budget surpluses and falling unemployment, as well as a falling debt burden overall. It is we who are the basket case now (to be fair, alongside France who might have to go cap in hand first). 

Back to Liz Truss. What was – and is - desperately needed was to slash government spending. Get rid of regulators and regulations, whole ridiculous government departments that keep adding bodies endlessly and uselessly, to enable taking Melei’s chainsaw to taxes and above all else let the economy operate the free market and the market clearing mechanisms. And Liz Truss was going to do all that except she didn’t quite have the courage to slash the government expenditure. As Hayek said, the price mechanism directs resources to all the right places. Unfortunately, bureaucrats think they know better.

And in case you think we are going to be able to continue along this path, I have bad news for you. The State Pension Fund (yes there sort of is one) will actually run out early in the 2040s. That means there will be NO pension for those retiring at that time. Why? Because more is being paid out already than is being paid in – better known as bad housekeeping. And a reminder of Mr. Micawber. The reason is there are less workers per retiree than there were, which means there is less money coming in per retiree.

So what would happen? Governments would have to work out how much was coming in and only payout what that was. That means an instant cut to the money paid weekly or monthly to pensioners. Arguably, we should right this minute stop the triple lock and at the very least work on an average of the three elements. That alone would help enormously. But until forced to, don’t bet on any Government alienating any of their voters. A complete fiscal reset is required in the UK, a root and branch extirpation of all the nonsense that ideological stupidity has forced through. Remember TINA and the Lady’s not for turning. TINA stood for There Is No Alternative. I regret to tell you there really isn’t.

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