|Unleash the animal spirits! The Truss Kwarteng philosophy By Feargus O Raghallaigh|
It seems to me that many people do not quite get what Truss and Kwarteng are up to, which is attempting to give political and policy expression in government and in power to a religious belief or a religio-economic belief in effect. The core of this belief system is what is known as the Laffer curve – it dates from the 1970s and is named after the economist Arthur Laffer, who by the way also claimed that he did not invent the idea, that it was very old as a concept and went back to Islamic philosophy.
The idea is simple; it says at its most simple, a government can cut tax rates and tax revenues will grow rather than shrink. You can hike taxes and people will work harder (or go into the ‘black’) and the effect is that productivity falls (people sweat their guts out in order to simply stand still). Cut taxes and people will up their game, productivity rises, people work smarter and growth happens … and so on.
Here is a link to a paper by an advocate of the Laffer proposition, by an advocate who was one of the original proponents of the idea.
Here is a link to a magic cinematic moment (one of my favourites) – the economics lecturer explaining the concept and its background to a US high school class …
The point of this is simple: Truss and Kwarteng are true believers in this theory as they see it and understand it, not simply of economics but of society — except that they misunderstand it entirely. They also disbelieve in institutionalism and institutional economics (another story).
The British economy is at virtual full employment statistically and yet it is stuck in a rut. People are working too hard or not at all or are in the black or a bit of everything. They are, on the T-K view, striving (unsuccessfully) to cope with an excessive tax burden, including through engaging in anti-social practices: the black economy, drug pushing, petty crime of all kinds and so on (not to mention living off a welfare state driven by wokism and so on). Cut taxes and spending and welfare and a new buccaneer spirit will be unleashed on the world.