The diehard experience of trickle-down economies and of fiscal rigour

by Antonis D. Papagiannidis

The way in which the markets (yes, the self-same markets any government with impeccable neo-liberal credentials swears by) ejected first the British Chancellor of the Exchequer Kwazi Kwarteng, then the PM Liz Truss herself should serve as a lesson on how pious credos are not enough to run open economies. The pound collapsed; the yields of British gilts soared; the sacrifice of Kwarteng at the altar (and his replacement by – less ideologically-minded – Jeremy Hunt) did help to get some market confidence back – but not enough. Even if unfunded tax cuts are erased now from the political skyline as a handy recipe, one cannot but question how so few of the commentators have insisted on the impact this episode should have on the overall acceptance of trickle-down economics as something other than snake-oil approach to real-time economic policy-making.

This unveiling of the shallowness of such fiscal management practices as these of the Kwazi Kwarteng short-lived mini budget – or else: the ideological fixation behind it, at so fragile a turn of economic policy as the one everybody lives through nowadays – should have left behind a major takeaway. As should the stepped-up rollback of the hallowed fiscal rigour that European economies have had to live by – until, that is, the successive waves of the corona-virus pandemic and of the energy crisis let open the floodgates of fiscal support to … well, everything and everybody.

The same goes for the insouciance with which Central Bank orthodoxy has been dealing with double-digit inflation (instead of ECB’s “lower but close to 2%” we were living already in a “flexibly around 2%” country) – that is, until ratcheting up interest rates became the name of the game with the Fed leading the pack across the Atlantic.

It would seem that the paradigm shift from Keynesian or Keynesian-memories policy-making of the Seventies and Eighties towards a neo-liberal and monetarist era has left behind so deep marks, that the shift underway towards some sort of new paradigm, even if mandated by the shocks we have been living under these last years, is quite difficult to accept.

The humbling of the British economy and political class at the hands of “their own” markets seems to need more time to sink in. The fact that, right now, Rishi Sunak who lost six weeks ago to Liz Truss on a platform close to the one Jeremy hand has already reverted, may serve as a reminder of what ideological fixation (and political levity) may bring about as political costs.

The same goes with the death-by-energy-relief-plans of fiscal rigour throughout Europe.