By any account, the reception of the Truss administration’s tax plan was startling. One need only look at the price of long-dated gilts, and the Bank of England’s response to that drop, to get a sense of the unease with which the general public reacted. Along with the precipitous drop of the pound, the public reception of Truss’ plan was equated with the bond market’s decline of about 50%. How could Truss succeed, commentators wondered, when public markets were deteriorating as if it were a recession.
To the public’s credit, she did not. There was never any plan announced for cuts in government spending, although there was a plan to announce that plan in the coming future. (That announcement, mind you, only came after the poor reception.) Given that, Truss’s resignation was understandable, if not inevitable.
Historical precedent provides some insight into how Truss thought her announcement would go. As is known, the Truss government modeled its plan off of ‘Reagonomics’—Ronald Reagan’s economic policies implemented during his tenure as president of the United States. Though received somewhat critically at the time, neoliberal politicians since have largely praised it for the growth of GDP experienced by the United States during this time. The growth in the American economy under his presidency ought to have been a sign that such policies work. Moreover, there are external similarities to the economic climate during Reagan’s era and our own. The last time inflation was as high for Americans as it is for British today was right around the time Reagan took office.
The differences are more acute though. Inflation had become far more entrenched when Reagan took over, having persisted at high levels for the prior decade (in fact it was already declining, excluding a brief and sharp rise early in Reagan’s tenure). The U.S.’s federal reserve under Paul Volcker was far more hesitant to boost the economy, and much more concerned about taming inflation, than any modern central bank, and certainly the Bank of England. Volcker targeted the money supply; modern central banks target interest rates.
Most radically different has been the introduction, since 2009, of tools initially meant to alleviate the effects of the Great Recession, but which are now used on a massive scale to encompass goals beyond those explicitly given to the Bank of England. These tools are generally known as ‘quantitative easing,’ an incredibly arcane name meant to assure the public that its practitioners are wise and intelligent people, who must be trusted with the most sacrosanct of responsibilities: steering the economy through behavior modification.
The Bank of England, then, is already pursuing what Reagonomics was supposed to have achieved: deciding when the economy needs to expand and when it does not. If all this sounds odd, it may be because one of the concerns during the debate over Brexit was that an unelected bureaucracy was responsible for governing the nations composing the European Union. Perhaps he ugly connotations conjured by ‘bureaucrat’ are why The Economist described Andrew Bailey as “an experienced technocrat” upon his ascension to the governorship of the Bank of England.
Andrew Bailey received his Ph.D. from Cambridge before becoming a research officer at the London School of Economics. Since 1985, he has worked for the Bank of England. He oversaw ‘special operations’ meant to resolve banking problems in the wake of the Great Recession. A consummate bureaucrat, he also earnestly ‘drinks the Kool-Aid.’ Tellingly, he objected to use of the term ‘addiction’ when describing the reluctance of the Bank of England to withdraw quantitative easing—never mind the appropriate analogy to withdrawal the markets experienced when Bailey just a few weeks ago injected a dose of quantitative easing (it’s offensive, people!).
In times when the central banks of the world were more restrained in their goals—targeting inflation, targeting employment, maintaining moderate interest rates—a government seeking to bolster the economy might be a welcome trend. However, we do not live in such a world. The direction of the economy is driven largely by central bankers, whose tools, despite at best providing only moderate economic growth, necessarily result in the increase of asset prices far beyond what is reasonable for the average citizen, without such citizens taking on increasingly enormous sums of debt. When Truss proposed her policy, she implicitly attempted to wrestle back a domain of influence that governments and their citizens have collectively consigned to central banks, and government should stay out of the business of expertly trained bureaucrats.
What is the average British citizen to do? Mr. Bailey cannot be voted out of office. He is a civil servant—although who precisely this man is serving is largely open to questioning. We can glean a possible answer by recalling that he urged unions not to demand pay increases in February of this year. Although he swooped in to save pension funds, it was his institution which drove those same pensions to riskier and riskier positions in the first place. This is the legacy of central banks the world over and their mission to expand their respective economies: sacrifice the long-term comfort and financial security of ordinary citizens for an increase in wealth for those who already have it.
So long as Andrew Bailey is in power—or, indeed, the Bank of England is entrusted with as much power as it has assumed for itself—it matters little whether the prime minister is Boris Johnson, Liz Truss, or even Margaret Thatcher.