Thread by @terry_barker21

#PostTruthEconomics aka Trussonomics or Trumponomics is the economics being followed by #PostTruth governments that ignore economic expertise and formal forecasting & scenario analyses in favour of evidence-free policies based on ideology or populism - a thread

In the UK, the #budget2022 is a prime example: no @OBR_UK costings with scenarios based on alternative assumptions; policy changes based on wishes & hopes, rather than evidence; facile & ad hoc justifications (trickle-down economics); bluster & mis-speaking arrogance; and lies.

One feature of #PostTruthEconomics is the co-option of non-mainstream, outlier, ideological, or dead economists to provide confident justification, at least of aspects of the policies, e.g. for #budget2022 Prof Patrick Minford @JamesVa72538332

Headlong pursuit of a radical set of policies & measures embodying #PostTruthEconomics can lead to financial shocks, as witnessed last Friday & today for UK interest rates & the £. Alarmingly, this 180degree shift in the UK policy stance has coincided with a global $ surge.

Financial contagion is rampant, because global markets have evolved via #financialization (hedging, algorithmic trading, insider trading, shadow banking) to move in step. Clearly the system is stable when shocks are small and within historical experience. Today’s shock is big.

In summary, #budget2022 is #PostTruthEconomics in action. It is exacerbating the ongoing financial crises in linked currency, bond, commodity, and equity markets. The shocks are imposed on an overexposed & overextended financial system making a global crisis highly likely.

The money tree has had some of its apples shaken off by the @bankofengland after the @imf warned the UK of an unwise fiscal policy stance. Interest rates have fallen rapidly, reversing the sharp rises since the #budget2022.

On 16 September 1992, a comparable rise & fall in interest rates took place, but led by changes in the Bank Rate, not a version of unplanned Quantitative Easing.
Such volatility is extremely damaging to confidence in monetary authority & even more to the Government’s reputation.

Monetary policy, in 1992 was in chaos, as it is now. At least, fiscal and monetary policies are now running in tandem, rather than in conflict, but only because the @bankofengland can easily act almost immediately. £65bn extra money added to the economy in a day 😑

Fortunes are being lost & made depending on who is inside the info loop and who is outside. As usual, the casino profits as betting/volatility flourishes. But unexpected shocks also lead to bankruptcies. The outcome of #PostTruthEconomics

The Financial Secretary to @hmtreasury came on the news to claim that the #budget2022 would raise growth, but making the UK economy more competitive by £ collapse, not via an improvement in the quality of exports, may well fail. More inflation is certain. More growth is not.

Shocks to complex systems can lead to unexpected & dangerous outcomes. The @bankofengland has stopped pension funds collapsing, but as a patch. The best bet to avoid financial disaster is to reverse the tax cuts promptly. Espousing #PostTruthEconomics, the Govt says otherwise.

PM Truss explains #PostTruthEconomics on regional BBC. Chris Philp supports and defends #PostTruthEconomics afterwards on BBC Radio4. What we got: denial, evasion, false analogies, blaming Putin, selective, cherrypicking earlier supporting statements from the IOD & CBI & flannel.

UK economic policy is in chaos: the planned & expected mix of tax changes, govt spending, interest rises, and a stable £ has not been believed by the financial markets as credible. Chaos ensues, day by day, as new policies & measures are announced “on the hoof”. Reality strikes.

I have been following UK economic policy as an economist since 1961. In year 1, as an undergraduate at Edinburgh University, Prof Alan Peacock taught me Political Economy. He was a forthright Keynesian: I was transfixed. Never since then have I observed such chaos in policymaking

Remembering successive crises, I rate them, in decreasing order of seriousness, as 1) the current chaos, 2) the GFC of 2007-2010, turning on the Lehman bankruptcy of 15 September 2008, 3) OPEC2, the 2nd oil price crisis merging with Thatcher’s monetary policy 2979-1980, 4) OPEC1

#PostTruthEconomics UK style. This crisis is the most serious of my lifetime. Tdlr: my ranking of them with this one as number 1), 2) the GFC 2008, 3) OPEC2 & Thatcher’s monetary experiment 1979-81, 4) OPEC1 1973-4 & the Three-Day-Week, after which inflation briefly exceeded 20%,

5) 1967 £ devaluation following the collapse of George Brown’s National Plan, prepared by new Department of Economic Affairs (DEA), set up to challenge @hmtreasury orthodoxy, but failing via a £ crisis.
6) 16 September 1992, Black Wednesday £ forced out of the ERM, bank rate⬆️⬇️,

7) Antony Barber’s dash for growth, 1971-3, seen by present govt as a precedent, but it ended with OPEC1 inflation.

Each of these these historical crises are different, but there are common features: £ falling sharply; rapid changes in Bank Rates/ monetary policy; global or domestic higher inflation before or after; growth➡️inflation before, £⬇️after;GDP⬆️after £⬇️ or GDP⬇️after global crisis.

Tdlr: unless the crisis is UK only and leads to a £ depreciation, so stimulating exports, financial market turmoil leads to more inflation and less growth in GDP. The current crisis has a mix of all the earlier ones, plus fatally #PostTruthEconomics as it’s guiding strategy.

The UK Government is following Trump’s playbook, but inexpertly, & in a relatively small, open economy, which was already under severe strain from Brexit & Covid. In key sectors, NHS, electricity & gas, social care, finance, hospitality, agriculture, water, resources are scarce.

However, other sectors, universities, English language teaching, much of manufacturing, recreation, entertainment, professional services, there is spare capacity bc Brexit has reduced exports & imports re the EU.

Clearly we are in a structural crisis, when the economy has to transform to #NetZero, away from EU trade to new markets, adapt to new regulations, replace EU migrant labour, & cope with a radical change on economic policy.

Incredibly, the main actors with agency (govt, @bankofengland, company boards, IMF and overseas Central Banks) are at odds. Worse still, nearly all the economic instruments they are welding, are macro, not structural, when the underlying problems are long term & structural.

Given this situation, the hopes of those persuaded by #PostTruthEconomics that animal spirits will engender an investment boom, low inflation & higher growth are misguided, or enjoying power for its own sake rather for the good of the country.

After 5 days of ongoing worsening crisis, with all the damaged chickens coming home to roost, Kwarteng, Truss, & Philps double down on their #budget2022, asserting that markets, Putin, other countries are to blame for the turmoil & that the £65bn bailout yesterday was a trifle.

Marina Hyde interviewed by Kirby Wark on the BBC, described exactly what is happening on Newsnight, yesterday: “Free marketeers … have turned out not to understand the free market.”

When these free marketeers confidently claim to know what they are doing, They deny the effects of the #budget2022 on the markets, despite the evidence, warnings and reprimands from the IMF, @LarrySummers, & @markcarney2017. Truss defying the markets. Classic #PostTruthEconomics

The @OBR_UK & @UKParliament enter the frame. The new govt rushed through normal procedures to claim the field in #budget2022, ignoring the OBR & the Select Committees concerned with finance. “Move fast and break things” was never intended to apply to managing the economy.

Cod entrepreneurial hype. The global financial markets, some centered in London, are complex & intertwined. And they work on almost instantaneous timescales. They break govts, not the other way around. As we see. Even worse, they are out of control of the @BIS_org directives.

The bear has been prodded, it’s hungry, tired, angry & alert. The markets are now fixed on the UK as a wounded & confused prey, which has defied conventions. Profitable opportunities abound.

If the Truss & Kwarteng thought that a budget favouring the @cityoflondon would give them leeway in the financial markets, they have been shown to be very wrong. ‘No honour among money grubbers’. Instead, the markets are paying attention to the UK, looking for mistakes & profits.

The UK authorities have recognized the dangers and rallied round to reassure the markets. Men in suits meet in Number 11 Downing St. The @OBR_UK prepares forecasts and scenarios. The £ recovers against the € (but €$ parity is on the cards). We all watch, wait, and hope.

The prospects are dire. 12 years of slow growth, austerity policies, blunt hacking of public exp. & services, exploding public debt, creeping corruption, & now policy chaos. I.e. #ToryMisrule It is hard to imagine a worse start to a new plan for UK growth.

The implicit assumptions behind this plan for growth are emerging. And proving to be wrong. Typical #PostTruthEconomics: do what you want, hope for the best, deny evidence, divert attention to the energy subsidies (which start today), and press on with the plan for growth.

1) The plan needs more public spending as subsidies for #NetZero investment & as higher capital budgets for infrastructure & housing. More public spending means higher public debt. Perhaps they assumed that low interest rates would persist. Instead they ⬆️ & added to future debt.

2) Another assumption is that people will accept tax cuts in #budget2022 as fair since the assumed growth might benefit everyone. They won’t.#TrickleDownEconomics does not exist e.g. Trump’s tax cuts failed. No reputable economist has accepted it as fair. resolutionfoundation.org/publications/b…

3) They assume that the @Conservatives will follow their new leader. Their conference starts today in unprecedented angst. For an establishment political party to trash the economy seems unbelievable. To then ask the members to support the trashing is beyond belief. We’ll see.

4) Another assumption is that ways will open up to reduce the public sector deficit. Two ways have been floated only to sink like rotten boats. The first was a real cut in social security benefits by linking the increase to wage rates, not prices. During a #CostOfLivingCrises ☹️

The second way to shore up public finances was another @hmtreasury tried & trusted scheme to improve efficiencies in the public sector by making staff redundant via investment. But this needs more spending, not less. More evidence-free #PostTruthEconomics

So it’s no surprise, in retrospect, that they sacked the Permanent Secretary to @hmtreasury when they took office. Now they rely on a civil service, repeatedly denigrated by Truss and her followers. To carry out unworkable if not unacceptable reforms, without proper consultation.

We are in very interesting times. The world turns.

Truss does TV. Incredibly, the ex-Financial Secretary to @hmtreasury (now PM) justifies the chaos in a desperate, drop-dead awful, talking-over interview on BBC1 02/10/22. Our new PM, Liz!, displays ignorance, confidence, arrogance, & determination in unequal measure.

Cracks appear in the facade of unity over the #budget2022 as the PM stutters over Kwarteng’s meeting with bankers, hedge fund managers, & other financial operators before said budget. Terrible optics; but rampant insider trading, surely not? It is a multi-faceted bankers’ budget!

#PostTruthEconomics in talk this tim, not action. The PM, Liz, gives a train-crash interview, carriages rearing up on top of each other as Liz the engine driver goes over the cliff. Calmly helping people over difficult times. Or not, as we plummet into the unknown abyss.

The second Iron Lady bravely facing difficult questions; & answers being corrected by the interviewer. Thoughtful pauses and considered answers: lies, obverscatIon, implausible excuses, robotic empathy talk, & a nice, genuine, relieved smile at the end.

What we learned: 1) Kwarteng is on his own, 2) the independence of the @bankofengland is definitely secure, but is also on her own, 3) the @OBR_UK was ignored in the short-term, urgent situation, but will be a “full part of the medium-term fiscal plan”.

The plan apparently belongs to Kwarteng as a textbook 101, example of how NOT to plan a radical shift in economic policy. Such change requires consensus via @OBR_UK, MPs, the voters, & the City. Not even tried. They require close cooperation between @hmtreasury & @bankofengland

In fact the levers of govt were being strongly pulled in different directions, so no wonder the engine has left the tracks. And the PM’s blame game began: other people, the @OBR_UK not being ready, & the independent @bankofengland - as well as Putin’s war & the exhausted viewers.

The panel of Michael Gove, Sharon White, & Pippa were excellent. Gove drives two knives into the chief architects of the plan. Truss is skewered on the unfounded tax cuts & Kwarteng on the evident unfairness of the tax rate cut for the rich & the bankers’ extra bonuses.

White knows her onions as an ex @hmtreasury employee and connections in high places. She provided both personal & business wisdom. Essentially the benefit of the tax cuts will be overwhelmed by the ferocious increases in debt & interest costs.

Pippa made the important point that Truss had explicitly said that the removal of the 45p tax rate was Kwarteng’s idea, so confirming the sheer amateurish approach to govt. #PostTruthEconomics in action.

Two days later. The plan starts to unravel. The financial sharks have smelt blood in UK waters & are thrashing in the exchange & bond markets. The @bankofengland @ecb @federalreserve steady the ships by massive interventions, hence the bumps, often £ ⬇️, $⬆️, accumulating UK debt

The lady IS for turning. @hmtreasury Chief Philp spins for 🏴󠁧󠁢󠁥󠁮󠁧󠁿, weathervane man of the day. The cracks have opened & the 45p tax rate flew back into the @hmtreasury coop. Those poor Tory MPs spinning the plan, even as it unravels while they speak. TopsyTurvy, if not tipsy, econ.

This is political #PostTruthEconomics at its most frenetic, deranged, contradictory, & implausible worst. The #budget2022 as “the start of a new era”: more likely the end of Tory economic credibility, if not the dying gasps of the Govt. Watch the Tory rats fighting in a sack.

Ministers speaking to the media, seem to have been chosen for their spinning, PR, lying, & facing-both-ways-at-once and skills. But are they good at running the great Depts of State? Unlikely. Poor us, the voters & citizens expected to suffer in silence.

So what next: 1) unturn on publishing the critical @OBR_UK forecast, 2) a modest Cabinet reshuffle to bring in some of those outside the tent, 3) more PR & spin on unbelievable growth plans, & 4) eventually more collapsing of the plan. The more we see of it, the worst it looks.

Note that no one is supporting this #PostTruthPolitics, except the perpetrators. Clearly, the UK under Truss is NOT like the USA under Trump. The UK ruling party is rapidly moving to reforming its voting process, unlike the MAGA hordes subverting the Constitution.

No reputable UK economist, mainstream or outlier, is supporting #PostTruthEconomics, only perhaps tame journalists in the untamed media. Growth may emerge from the chaos, but the odds fall by the day. The sunlit uplands are, unfortunately, in the clouds, & we’ll never get there.