Liz Truss is a human sacrifice to the inflation fires
Summary
Trace it back to the silence of the economists on the inflationary effects of Covid lockdowns.Needed is a post-Freudian theory of hysteria in which hysteria is not an ailment of women but an ailment women provoke in the bond market.
Hysteria still functions by displacement, though. It wasn’t the “insane," “stupid" and “moronic" inflationary effects of Prime Minister Liz Truss’s pro-growth proposals for the British economy that tanked the U.K. bond market and threatened (in some accounts) to set off a global contagion.
For one thing, Ms. Truss was elected not by the British people but by 140,000 practicing Tories—which is what happens when a prime minister resigns, as Boris Johnson did. The prospect of her even delivering on her plans was questionable. Her proposed tax cuts weren’t giant, amounting partly to canceling future tax increases. Her deregulation didn’t threaten the British budget, it promised higher tax receipts from new housing starts, development of Britain’s fracking potential, etc. Her giant spending plan to offset energy prices may have been costly and imperfectly designed, but no government of any party was going to do less. Add the fact that her claimed threat to Britain’s debt sustainability seems implausible if Britain can still borrow at 4.5% when inflation is 10%.
The more we learn, the more the panic selling actually seems to have been caused by British pension fund managers who, like the most of the financial world, weren’t ready for inflation and higher interest rates and want central banks to prop them up (as Britain’s did this week).
Ms. Truss may be gone before a further realization sinks in: The only salve for this tidal wave of hurt will be a turn toward pro-growth policies.
“There is no alternative" was the Thatcherite phrase, but Freud pointed out that there’s always one alternative, hysterical paralysis. Sadly, Commerce Secretary Gina Raimondo was trotted out on behalf of President Biden to slur Ms. Truss for “cutting taxes, reducing government and deregulating, it is a failed economic theory," which will be news to anyone who was alive during the 1980s and ’90s.
Ms. Raimondo was once brave, as Rhode Island governor taking on public unions over bloated pensions. Now she rejects any conceptualization of the inflation problem that might indict the administration’s two big priorities: spending as much as humanly possible and using regulation and taxes to suppress the supply of everything (energy, labor, goods and services) except wind and solar, which destabilize our electric grid.
Peak symbolism is actually Washington’s student-loan policy. Let’s see: The price of a college education is inflating out of sight, the value provided to students is not materializing in the marketplace, and meanwhile educational overhead is ballooning. America’s four-year colleges spend less than 30% of their budgets on their actual mission, i.e., “instruction." So what is the Biden response? Throw $420 billion more in taxpayer money on the pile to forgive past debt as a signal to universities and students to keep making the same choices.
The global panic that landed on Ms. Truss is free-floating but grounded in a reality that this column has noted repeatedly. When Paul Volcker fought the inflation of the 1970s, he had to contend with a debt that was 34% of GDP. Now it’s 127% in the U.S. and nearly as high in other major economies.
Hedge fund manager Kyle Bass, a favorite guru of CNBC, has taken up the same theme on TV: “These are crazy times. Volcker can’t live today because it will break us as a country."
It will break our politicians, at least, when they are required to slash benefits, jack up taxes or run the money press to cover an interest bill that could explode to dwarf even entitlements as the biggest budget item.
“Freud was right," says Chris Nicholson, chief of psychoanalytic studies at Britain’s University of Essex, meaning the human tendency to convert unmentionable thoughts into displaced symptoms.
In our current economic fix, it didn’t begin with this week’s ritual cremation of Ms. Truss, but with Covid and the disastrous silence of economists on the inflationary consequences of printing trillions of dollars to help people consume without producing (i.e., going to their jobs).
The political necessity of this spending can be debated, but there was no reason not to recognize and anticipate the predictable inflationary effects, write medical professor Jay Bhattacharya and economist Mikko Packalen, in an essay for the Brownstone Institute that deserves your attention. The conformity-in-silence of the economists came from the same get-on-board pressures that made it social suicide to question the medical value of lockdowns.
Now our bed is made. Ms. Truss’s truth will march on regardless of her personal fate: The only hope of ameliorating our situation lies with policies that put economic growth front and center.