Aurelia Butler

The country is returning to a more normal life. But it will not be that normal. Liz Truss will see to that.On Friday, Kwasi Kwarteng, chancellor of the exchequer, will follow up his emergency energy package with a mini-Budget. The latter is expected to reverse the rise in national insurance contributions and stop a planned increase in corporation tax. It will also set a target of annual growth at 2.5 per cent. Should we take that seriously? No and yes. No, because the idea that the government of a market economy can meet a growth target is ridiculous. Yes, because it will guide policy. The question is whether it will guide it for good or bad. My bet is on the latter.Neither Hayek nor Friedman would have thought a growth target at all sensible. That is planning. Hayek would rightly insist we have neither the knowledge nor tools to deliver one. In Britannia Unchained, published in 2012 (two of whose authors were Kwarteng and Truss), Brazil was proposed as a model. Ten years later, that looks silly.A growth target is not just unworkable, but a danger. Suppose Kwarteng tells the Treasury and Office for Budget Responsibility they must assume this target in their forecasts (if they are allowed to make any.) If he is wrong, deteriorating public finances could generate a crisis of confidence, as happened in the 1970s. He seems to dismiss such worries as mere “managerialism”.

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So, let us put the target to one side and consider policy. Truss says “the economic debate for the past 20 years has been dominated by discussions about distribution.” Yet, says the OECD, the UK has, after the US, the highest inequality in the distribution of household disposable incomes of all high-income countries. Nor were George Osborne’s post-crisis austerity policies at all concerned with “distribution”. Her view of the UK’s past debate is a red herring.We need to recognise instead that 40 years on, Thatcherism is a zombie idea, for two opposing reasons — both what was achieved and what was not.

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Thatcher did liberalise labour markets, curb trade unions, privatise nationalised industries and slash top tax rates. Her policies (which included promotion of the EU’s single market), as well as those of later governments, also strengthened competition in product markets. Overall, today’s UK is a low-tax country, by the standards of other high-income economies. It has a deregulated economy, in which the successful are well rewarded, but those who do less well are penalised. Such Thatcherite aims then are now a reality. What then did Thatcher and those who followed her fail to achieve? They did not liberalise the biggest distortion in the economy, which is land use. They did not transform the skills of the population, which has been made harder by the conditions in which many children grow up. They failed to address defects in corporate governance, which bias spending against investment. They allowed the search for safety in corporate pensions to shift portfolios away from the supply of risk capital to business to ownership of government bonds. This in effect turned the plans into state-backed pay-as-you-go schemes.In all, economic performance has not been durably transformed for the better. In 2019, output per hour worked in the UK was much the same, relative to France and Germany, as it had been in 1979. Above all, productivity has stagnated since the financial crisis. Investment is the lowest as a share of GDP of all big high-income countries. Business investment has remained below its peak in real terms since the Brexit referendum. The previous implosion of the financial sector under “light touch regulation” did not help. Nor did post-crisis austerity or the folly of Brexit itself. The uncertainty alone is bad for confidence and so for investmentThe idea that further tax cuts and deregulation (such as lifting the cap on bankers’ bonuses) will transform this performance is a fantasy. What is simple has already been done. What is left is hard to do. To take one example: higher investment requires higher savings. From where are these to come? There are also the linked complexities of climate change and energy. Moreover, the evidence is that both better economic performance and political stability may depend on lower inequality, not still more than the country has today.The Truss government is not just devoted to tax cuts and deregulation. It also continues to suggest the possibility of breaking with the EU over the Northern Ireland protocol, which would also be a breach with the US. This would undermine confidence in the UK’s probity, add to uncertainty, prove that Brexit has not been done and suggest that the government cannot live with the choices it made on its own flagship policy. To add to all this, Truss seems set on breaking with China, too. Her UK seems determined to be friendless.Furthermore, the Tories won their majority under Boris Johnson on getting Brexit done, strengthening the NHS and “levelling up” poorer areas. In so doing, they created a new coalition of traditional supporters with former Labour voters. Today, Brexit is not done, the NHS is in crisis and levelling up seems on the way to oblivion. Just 81,000 Tory party members have chosen as prime minister someone who was not even the first choice of their elected members of parliament. She has no mandate for the policies she wishes to pursue. One can imagine little better designed to exacerbate today’s pervasive cynicism about politics and politicians.Trust is easy to destroy, but hard to recover. This is why keeping one’s word matters. Britannia is not “unchained”. It is instead sailing in perilous waters. Can the new captain and first mate even see the rocks that lie [email protected] Martin Wolf with myFT and on Twitter More

WASHINGTON (Reuters) – A top adviser to U.S. Treasury Secretary Janet Yellen will warn on Tuesday that China’s foot-dragging on debt relief could burden dozens of low- and middle-income countries with years of debt servicing problems, lower growth and underinvestment.Yellen’s counselor Brent Neiman plans to criticize China’s “unconventional” debt practices and its failure to move forward with debt relief at an event at the Peterson Institute for International Economics, a text of his prepared remarks obtained by Reuters shows.”China’s enormous scale as a lender means its participation is essential,” Neiman said in the speech, citing estimates that China has $500 billion to $1 trillion in outstanding official loans, mainly to low and middle-income countries.Many of those countries are facing debt distress after borrowing heavily to combat COVID-19 and its economic fallout. Now Russia’s war in Ukraine has caused food and energy prices to soar, while rising interest rates in advanced economies have triggered the biggest net capital outflows from emerging markets since the global financial crisis, Neiman said.He said a systemic debt crisis had not materialized, but economic stresses and domestic vulnerabilities were increasing and could grow worse.China had a unique responsibility on debt issues since it is the world’s largest bilateral creditor, with claims surpassing those of the World Bank, International Monetary Fund and all Paris Club official creditors combined, Neiman said.Neiman’s critique of China’s debt practices marks the latest salvo by Western officials and the leaders of the World Bank and International Monetary Fund, who have grown weary of delays and broken promises by China and private lenders.As many as 44 countries each owed debt equivalent to more than 10% of their gross domestic product to Chinese lenders, but Beijing has consistently failed to write down debts when countries needed help, Neiman said.Instead, China has opted to lengthen maturities or grace periods, and in some cases, such as that of Congo in 2018, even wound up increasing the net value of its loans.Neiman said China’s lack of transparency and its frequent use of non-disclosure agreements complicated coordinated debt restructuring efforts, and meant liabilities to China were “systematically excluded” from multilateral surveillance.Beijing signed up to the Common Framework for debt treatments agreed by the Group of 20 major economies and the Paris Club in late 2020, but it had delayed formation of creditor committees for Chad and Ethiopia, two of the three countries that had sought help under the framework.In July, it said it and other official creditors would provide debt treatments for the third, Zambia, but the delays had prolonged uncertainty, and could discourage other countries from requesting help, Neiman said.All three cases should be resolved quickly, he said, adding that some middle income countries like Sri Lanka also needed urgent debt restructuring.Neiman warned that IMF financing should not be used by countries to repay select creditors, and called for more transparent reporting and tracking of financing assurances.He noted that China had engaged in “unconventional” practices that had allowed the IMF to move forward without obtaining standard financing assurances.He cited China’s past actions on Ecuador’s debt in 2020 and its refusal to restructure its debt service for Argentina, even though Paris Club creditors were likely to do so. “In many of these cases, China is not the only creditor holding back quick and effective implementation of the typical (debt restructuring) playbook. But across the international lending landscape, China’s lack of participation in coordinated debt relief is the most common and the most consequential.” More

MOSCOW (Reuters) – Prime Minister Mikhail Mishustin said on Tuesday Russia’s budget deficit would come in at 2% of gross domestic product in 2023 before narrowing to 0.7% in 2025. In televised remarks, Mishustin said the budget gap would be covered mainly by borrowing. Last week, the Finance Ministry returned to local debt markets for the first time since Russia sent tens of thousands of troops into Ukraine, triggering unprecedented Western sanctions that have locked Moscow out of international debt markets.Mishustin’s prediction that Russia would run a budget deficit for at least the next three years came just two weeks after President Vladimir Putin said Russia would post a surplus in 2022, contrary to most expectations.Mishustin estimated government revenues of around 26 trillion roubles ($433.6 billion) versus outlays of 29 trillion roubles for 2023 ($483.7 billion).The government deficit will come in at 1.4% of GDP in 2024, falling to 0.7% of GDP in 2025, Mishustin said.($1 = 59.96 roubles) More