The overreaction to the Truss macro policy

It has been extreme:

I know an unpopular economic policy when I see one. And the consensus among economists about the tax cuts and deregulations announced last week by UK Prime Minister Liz Truss is almost universally negative. Larry Summers noted: “I think Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.” Willem Buiter described it as “totally, totally nuts.” Paul Krugman is skeptical. As Jason Furman summed it up: “I’ve rarely seen an economic policy that is as uniformly panned by economic experts and financial markets.”

That is from my latest Bloomberg column.  I certainly can see reasons why one might oppose the plan, but the skies are not going to fall:

I see no evidence that the markets are beginning to doubt the UK’s ability to repay its debts. The UK, and earlier Great Britain, has arguably the best debt repayment history of all time (though it did default on some of its debts to Italian lenders in the 13th century). It even repaid its extensive debts from the Napoleonic Wars, though they were more than 200% of GDP.

There are different ways you might measure the marginal cost of UK government borrowing, but I don’t see any measure where it is high and under many measures it is negative in real terms.  Remember when people used to tell us this meant there was no major problem on the fiscal side?

I do criticize the Bank of England for not doing more to reign in inflation, plus the government should have coordinated better with the Bank.  And don’t forget this:

The Truss plan offers many admirable deregulations, including an attempt to get the UK economy to build more residential structures, as it so badly needs. It is difficult to say now just how successful this plan will be, but it is definitely a step in the right direction, as are most of the other deregulations, including lifting the ban on onshore wind generators. By calling the Truss plan the worst thing ever, commentators make it unlikely that these ideas will get the approbation they deserve.



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