'Liz Truss Hasn't Understood a Word I Wrote', Says PM's Favourite Author

A scathing indictment of Prime Minister Truss's and Kwasi Karteng's economic plans from the author that she claims inspired them.

From The Spectator

By Nick Cohen

As I reported this summer, Liz Truss’s favourite historian is Rick Perlstein, the great chronicler of the rise of the new right in its Nixonian and Reaganite forms between 1960 and 1980.

She told journalists that she read ‘anything’ he wrote. Interviewers noticed Perlstein’s books on her shelves. In a strange compliment to the American historian, Truss or sources close to her briefed The Spectator's Katy Balls with precise (if unacknowledged) quotes from his account of the rise of Ronald Reagan.

I sent Perlstein my piece and asked for his thoughts. Let me put it like this: he may be her favourite historian, but she is not his favourite politician. Not even close. Not even in the top 1,000.

‘Liz. Can’t. Read.’ he replied, and began a long – and for British readers frightening – account of how and why our new government of wannabe Reaganites have crashed the economy.

Perlstein said that, if she read his books with the attentiveness she claimed, she would not have risked our pensions and mortgages with a naïve belief that tax cuts would stimulate economic growth and raise revenue for the Treasury. Far from paying for themselves, Reagan’s income and capital gains tax cuts in the early 1980s sent public debt from 26 per cent GDP in 1980 to 41 per cent GDP by 1988.

More pertinently, he added, she would have noticed that serious conservatives in the 1970s never supported his plans.

Perlstein told me via Twitter:

“In the late 1970s, the US’s economy in a cocked hat and conventional Keynesian – ‘liberal’ – solutions failing, all sorts of intellectual entrepreneurs on the right came forth with their solutions to the problem, as I narrate in Reaganland, a volume Liz claims to have read.

[Of the] many solutions on the table, the one that prevailed was the one that all the actually half-way qualified experts on the right knew was nothing but a fairy tale on par with Jack in the Beanstalk. (Do Britty kiddies read that?).

[It was] devised by a dude whose only economic training, in his own description, came from learning to count cards at the blackjack tables in Las Vegas. I wish I were making this up, but I am not.

He is referring to Jude Wanniski, a journalist who did indeed coin the term ‘supply-side economics’ in the 1970s after a spell working in Las Vegas. He attracted the attention of Reagan, Jack Kemp and Steve Forbes with his promise that the Laffer curve guaranteed that, if conservative politicians cut taxes, the economy would boom.

As Perlstein notes, Wanniski’s first piece promoting the idea in a 1975 issue of the Conservative journal Public Interest ‘lacked almost everything that made economic arguments convincing to other economists’. There were only four footnotes. No data. No formal models. Economists thought supply-side economics was a joke. It would take decades to recoup the money lost in tax cuts to wealthy people, they argued. To them, true Conservatives were like Rishi Sunak and George Osborne: they believed in lean budgets and tax rises to balance them. Their first aim was to ensure public debt did not pile up.

In an article for the Wall Street Journal in 1976, Wanniski said the problem with the right was that it wanted to be Scrooge when it should be Santa Claus. It should deliver tax cuts, forget about the national debt and sit back as a grateful citizenry repaid the favour at polling stations.

Perlstein quotes the objection of Milton Friedman, who was hardly a socialist. The inflation that unfunded tax cuts would produce meant that supply-side economics was merely a ‘proposal to change the form of taxes’ rather than lower them. Alan Greenspan, who once again was a man of the right, said he knew of no one who believed that Arthur Laffer’s curve would magically turn tax cuts into increased government revenues.

And so it has proved again and again. Reagan’s tax cuts, George W. Bush’s tax cuts, Donald Trump’s tax cuts all failed to deliver.

But politicians like to play Santa Claus. Left-wingers want to give taxpayer-funded goodies to their supporters. Right-wingers want to give tax cuts to theirs.

In the 1970s, Irving Kristol, the editor of Public Interest, was explicit that politics must trump economics. The political advantage tax cuts would provide to the Republicans was so historically imperative they should be blasted through whatever the effect on the budget. ‘The neo-Conservative is willing to leave those problems to be coped with by liberal interregnums,’ he wrote in the Wall Street Journal. ‘He wants to shape the future and will leave it to his opponents to tidy up afterwards.’

The US in the 1980s was the world’s richest country and had the advantage of controlling the world’s reserve currency. It took many years for the failures of Reaganomics to become obvious. If, as Adam Smith said, ‘there’s a great deal of ruin in a nation,’ as he sought to explain why countries can cope with bad policies surprisingly well, then there’s a great deal more in a superpower. Britain’s economic weakness is one reason why Liz Truss and Kwasi Kwarteng’s attempt to play Santa Claus has been the most disastrous unforced political error of our lifetime. Debt-ridden and inflation-battered, the UK’s tolerance of ruin has all but run out.

But Milton Friedman’s point is surely the better one. The government has imposed a tax increase in all but name on homeowners with a mortgage, on renters fearing their buy-to-let landlords will pass on their mortgage increases, on small businesses worried about interest rate rises, and on employees with pension funds. The penny they will get off the basic rate of income tax is a pitiful compensation

Perlstein cannot believe that Truss read what he wrote on the birth of Reaganomics and thought ‘Jolly good! Let's give it a go!’ Nor, if the opinion polls are to be believed, can a staggeringly large majority of British voters.