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Alasdair Macleod: Kwarteng and a job half done
By Alasdair Macleod
Thursday, September 29, 2022
Following the new Kwarteng/Truss economic policies revealed in last week’s mini budget for the United Kingdom, the widespread condemnation is a reflex Keynesian response from a world that has become hostage to erroneous economic and monetary groupthink in its major institutions.
Kwarteng has jogged the global statist establishment out of its complacent drift into totalitarianism. His is a wake-up call to markets everywhere, a catalyst for the unwinding of accumulated market distortions. Mounting criticism from all quarters is shooting the messenger, but the message has been delivered.
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In one important respect, the criticism is valid. Kwarteng must address the budget deficit urgently by taking steps to reduce the size of the state as a proportion of the total economy. Only then can inflation be conquered and the pound stabilise. In another respect, the new policy is sensible: By plotting its own free market/Hayekian course, Britain can emerge out of the crisis sooner than other nations stuck in the current democratic-socialist paradigm.
If we assume that Kwarteng does address the size of the state and eliminate budget deficits as early as practically possible, he will have a practical plan for a post-crisis Britain. Economic recovery can than happen sooner rather than later, a major consideration given that the next general election is in a little over two years.
It is too late to avoid the gathering global crisis, the financial consequences of which are bound to devolve in large measure on London's financial centre. Indeed, Kwarteng's wake-up call may be the trigger for a financial avalanche. But what he is unlikely to realise is that the gathering crisis is so severe that even the continued existence of fiat currencies will be threatened, with the euro and sterling being particularly vulnerable.
In this article I also comment on the Bank of England's failure as an institution, whose future role in monetary affairs should be strictly curtailed. And I advocate the abandonment of all trade tariffs, with the possible exception of agriculture for political reasons. These are fundamental reforms which must accompany free market policies.
We must proceed with our commentary ignoring the existential threat to currencies if it is to be relevant to the government’s economic policies and their global impact. ...
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