Kwasi*-Keynesian
Warning: If you see this man, Kamikaze Kwasi, please don’t approach and most of all don’t listen to his dangerous delusional gibberish. He’s of a dangerous mind and prone to erratic-radical behaviour. He has, with the aid of accomplice Mad Liz, underwritten the demise of the world’s once great and oldest democracy to de-emerging status.
I’ve read many press and social media sages in last few days so I know what I say above is the truth. Right? Well, hold on, everyone deserves a full and fair trial m’lud. No one should go straight to the liquored-up hanging judge for sentencing (looking at you Bloomberg)…
Kwasi’s channeling Keynes
Oh yes he is! For sure Kwarteng isn’t a disciple of Keynes. However, in breaking from the prevailing austerity logic-madness that proletarian democracies can cut their way to prosperity he is clearly channelling JMK. He is seeking to bat away the ills of recession through stimulus of both tax cuts and energy bill support.
I have some quibble on the exact points of stimulus attack he has chosen (I’d like more government supported and targeted investment, particularly energy) but I wholeheartedly welcome the step change in direction. We should all be thankful we weren’t burdened with Rich Guy Rishi’s new austerity plans to manage the recession induced by exogenous energy shock. Funny how super wealthy people always want us plebs to cut our cloth accordingly and are delighted to moralise on it. And even more surprising how many of us go along with it.
I also like the new orientation on energy that says we should find and produce new domestic energy as quick as possible — a tough gig as we should have started that years ago but the right reorientation at least. It’s doubly good that he hasn’t limited us to just the fashionable magical thinking on renewables. For the avoidance of doubt, absolutely 100% yes to more wind (plus tidal etc).
Kweconomics
I understand the angst around some of the tax cuts. In the current climate it doesn’t look right to give higher earners a 5% tax cut on earnings above £150k. And I don’t think it was a necessary move economically but clearly it’s signalling to the Tory base and maybe a tax simplification move (good thing to do).
However, turning down the outrage a little, this is only a £2bn hit to government revenue. A lot to you and me…but small beer at the national level. Its quite possible that the tax take from people with incomes above £150k increases due to this move rather than decreases as simply some very affluent people choose to pay more tax rather than pursue (legal!) tax reduction strategies.
A similar argument runs with corporates. Make a big jump in corporation tax from 19% to 25% and you find that big international businesses find a way to move their tax burden to more favourable jurisdictions. Reduce corporation tax and more may choose to pay their dues in the UK.
Look, I’m not arguing tax arbitrage is a good thing. I am saying it’s the real world. So it might be good headlines to signal you are going to tax the man harder…but it’s maybe better economics to encourage more to pay their share here.
Want to stop this avoidance “immorality” by wealthy people and corporates? Then we’d better talk about capital controls. Do we slap them on to stop the money bleeding legally overseas? If you blithely respond yes to this but do not categorise yourself as socialist bordering Marxist then you haven’t thought things through very well.
The counterattack on Kwasi is fierce
Domestically it seems to be a pastiche of tax the undeserving rich and companies but keep cuts for deserving ordinary people, renewable energy to infinity and beyond, social justice plus he’s fiscally imprudent and burdening future generations with debt. Note, I wish everyone would just stop the ridiculous housekeeping based accounting identity critique of government finances! Its utter bs. Historically its been the right who use this unlogic to bludgeon debate but now the left is happy to trot it out too. It is the epitome of austerity hugging zero growth thinking.
I believe the long term structural threat any free, market-orientated and democratic society faces to its successful continuance is how to help majority of people live well when most will not economically succeed on their own in ‘free market’ terms. So a hand up and distributional policies are necessary to make society function well. Let’s say it’s how society embedded the lessons learned from WW2 and socialist thoughts and subsequently found broad prosperity.
I’d expect the left to lead on solving this conundrum. However, at this moment looking forward to the next general election in the UK, I struggle with the idea of voting for Labour and I believe that Mad Liz has a better chance of pulling us out of our post 2008 funk. Why?
Growth or class war?
The Labour Party is set on a path that sets us up for ugly class war politics. They don’t intend this outcome and they believe they can capture many affluent voters with arguments of social and environment justice but the seed of the conflict they will ignite is in their energy policy. They simply do not believe in energy abundance nor recognise that prosperity, productivity and growth are all intrinsically linked to ensuring abundant energy supply. To be honest, I’m not sure that the Tories understand this well enough either but at least they have moved away from dumb polices that embrace energy poverty as a sound strategy.
Why class war? Energy abundance and growth are intrinsically linked. Energy austerity creates massive growth headwinds, as illustrated by our current woes. Attempting any significant redistribution policies under conditions of sustained energy duress will make the redistribution process painful and ugly, in a way that could permanently unbalance society.
Hey Keir, if you want some help with policy give me a call (I’m actually a card carrying party member).
Kwasi and the markets
What a load of shit has been written about Friday. Many a market shaman has made an arse of themselves in how they attribute cause for Friday’s dire market day. The market art of parsing, analysing and sorting information has been lost by many replaced by 100% meme based banalysis. At the extreme end of stupid is anyone who said the UK is having an emerging market crisis. Go smoke something to calm yourself down and regain some sanity!
I don’t dispute the UK is having a crisis along with many other countries who did not understand that energy security is a prerequisite for maintaining a civilised and affluent society, and we do have some real vulnerabilities at the moment. But what happened specifically on Friday is that the UK made a significant change in its policy footing in that we chose to spend and stimulate more so borrow more. Kwasi and Liz have also hinted quite directly that they think the Bank of England should hike more aggressively to counter inflation.
So, of course UK government yields rose as did short term interest rate expectations. The pound did a gobsmacking 3.5% fall against the all mighty US dollar too…but other major currencies also fell 1.5–2% against the dollar and that’s pretty nasty given they didn’t blow the bleeding policy doors off. So an adjusted 1.5–2% for the pound relative to others is still ugly…but its all part of the instant repricing by markets given the signals Kwasi clearly gave them. A 2% day is ugly but not the coming of armageddon. (Currencies have strong short term momentum so some immediate follow through would not be unexpected)
Let’s see what the next few weeks bring. The vice the dollar has the world in is pretty ugly. Why? US is energy (and other resource) independent, has real internal durable consumer demand and is really the only halfway decent significant economy there is. The rest of us are all in similar degrees of woe, partly as we were mad enough after 2008 to choose semi- depression as our policy setting (and ignore geopolitical risks like energy).
Dollar strength must cool at some point. This could be after much more pain and accelerated global crisis. I guess not but I really don’t know. My reason for no rerun of something like Plaza Accord is that the world ex US lacks any sustainable growth engine particularly given the dollar price of oil (growth requires a global credit engine, maybe with fiscal push help that just ain’t transpiring). Cooling in the US economy along with the distress in rest of the world likely cools energy prices (they can’t go up as too many can’t afford if there isn’t a growth engine), helps reduces inflation pressures, cools rate hike pressure in the US (which I think Fed is likely overdoing now) and gives the rest of us dollar respite.
A combination of a new growth orientated and open for global business UK plus loosening dollar strangulation could see a bounce back in the pound and UK assets. That’s my view. I accept many risks to it.
And the UK’s action may pose some awkward questions for other European economies. What’s their plan for turnaround? Will markets tolerate the abomination of no growth and rising indebtedness?
Reflexivity: Loser Liz / Lucky Liz
Policies and politicians always need some luck. How will it unfurl for Mad Liz?
Times have been bad and expectations globally are pretty dire. Its quite likely that quite a lot of bad is in the price of assets and plans of people and businesses. That’s interesting for Liz Truss as our new PM and it may be a pretty opportune time to take control of power.
Then there’s the idiosyncrasies of the UK making an unabashed move for growth over stagnation when the rest of the world (ex US) is forlornly navel gazing hoping that things get better. Not a sure fire winner for UK/Liz but it is surely a very interesting axis. Maybe we keep going down with the rest of the world ex the US, maybe we stand out a little…catch a bid for UK things, appear more desirable than other places?
Life, politics, geopolitics, markets are funny things. The most powerful intangible quantity is change and the reflexivity associated with it. I don’t know if Mad Liz will be reflexively lucky but she’s put herself in a position for the possibility. I think the odds are decent.
To conclude…
The anti Kamikaze Kwasi, Mad Liz and Blighty cacophony got a bit unhinged on Friday. All that really happened is the markets repriced UK assets for the the new policy footing in a day that was quite viscous for global assets in general. Everything else said and printed was rank speculation, often from people who should know better and understand more. Woe is our hypermeedja hypernarrative world.
*Definition of quasi / kwasi
(Entry 1 of 2)
1: having some resemblance usually by possession of certain attributes // a quasi corporation
2: having a legal status only by operation or construction of law and without reference to intent // a quasi contract
quasi-
Definition of quasi- (Entry 2 of 2)
1: in some sense or degree // quasiperiodic quasijudicial
2: resembling in some degree // quasiparticle
