WWithin weeks of taking office, Britain’s new prime minister, Les Trussand Treasury Secretary Kwasi Quarting proposed a radical new set of economic measures that mirror Margaret Thatcher and Ronald Reagan’s heavy-handed policies on tax cuts for the wealthy and deregulation.
Last Monday, after a backlash from investors, economists and members of his party, Mr. Kwarteng reversed one of the proposals, deciding not to scrap the 45% tax rate on higher earners. But proposals for further tax cuts worth tens of billions of pounds remain, with the government insisting they are on track.
The strange thing about this latest episode of tiered economics — the staunch belief of the political right that tax cuts and deregulation are good for the economy — is that this gonzo economic theory is still alive, despite its repeated failures.
Since Reagan and Thatcher first tried them, tiered-down policies have exploded budget deficits and widened inequality. At best, they temporarily increased consumer demand (as opposed to what is needed during the high inflation experienced by Britain and most of the world).
Reagan’s tax cuts and deregulation in the early 1980s were not responsible for America’s rapid growth during the late 1980s. His exorbitant spending (mostly on national defense) fueled a temporary boom that ended in a brutal recession. Donald Trump’s tax cut for the White House Did not seep down.
However, the United States never regained the highest marginal tax rates before Reagan, and deregulation – especially in financial markets – is an enduring legacy.
Results? From 1989 to 2019, the typical working families in the United States slight increments in their real incomes and wealth (inflation-adjusted).
During the same period, the richest 1% of Americans became $29 trillion richer. The national debt exploded. The Wall Street takeover of the economy continued.
Meanwhile, and largely as a result, America has become even more bitterly divided along class and education divisions. Trump didn’t do it. I took advantage of it.
The situation in the UK after Thatcher was not significantly different.
Even during the past decade of economic growth, social progress has fallen on many fronts – from education and health care to rights and tolerance – in Britain. according to social progress index, The UK is one of only four countries that have fallen backwards since 2011 (the other countries are Syria, Venezuela and Libya).
So why is the tiered economy still with us? What explains the deadly allure of this frequently failed economic theory?
The easiest answer is that it satisfies powerful political interests that have the money and want more. Lobbyist armies in Washington, London and Brussels constantly demand tax cuts and “regulatory relief” for their wealthy patrons.
But why has the public been so frequently willing to keep up with the tiered economy when nothing ever happened? What explains the collective amnesia?
The answer is that financial stakeholders have also invested a portion of their earnings into an intellectual infrastructure of the economists and pundits who continue to promote this failed orthodoxy—along with the institutions that harbor them, such as, in the United States, the Heritage Foundation, Cato. Institute and Club for Growth.
Take Stephen Moore, founder and former president of the Growth Club and prominent economist at the Heritage Foundation, whose columns appear regularly in the Wall Street Journal and is a frequent guest on Fox News.
Moore helped craft and promote Trump’s tiered tax. In recent weeks praised and praised Ms Truss for her willingness to “challenge prevailing orthodoxy with a sharp tax cut to boost growth”, describing her group as a “bold and sound political decision” that would “bring jobs, capital and business back to the UK”.
Moore and others like him are happy to ignore the evidence and the history of the fiasco. They are simply repeating the same set of promises made decades ago when Reagan and Thatcher set out to convince the public that the partition-down would work great.
The audience has a lot of other things on their minds and gets so confused by the cacophony they don’t remember – until the next instant failure.