Rational behind Kwasi Kwateng’s budget

[UserOneSquillion]

Genuine question, what is the rationale? On paper he is a extremely intelligent man with a background in economics. Was he following Truss’s orders? Is he trying to keep big business in the UK? If so wouldn’t it be better to lower business tax rather than income tax? Absolutely no one seems happy with this.

[IrisVersicolor]

@Everylittlethingsgonnabealright

It is in the news…

www.theguardian.com/business/2022/sep/26/fca-urged-investigate-tory-allies-short-pound-insider-info-budget

To be fair you didn’t need insider info to guess something of what was coming. You only needed to read Britannia Unchained and follow ERGism.

I effectively bet against the pound in my own small way.

[sst1234]

Among the usual hysterical responses, there is some sensible debate.

It looks like he got the sequencing wrong, tax cuts before liberalising the economy. That could be intentional given that the GE is only two years away, so getting the difficult things out of the way first, the only embark on market liberalisation. Part of the plan has to be to open the labour market. The economy simply cannot grow with the current labour shortages. So the next difficult thing would be to this, as it will be unpopular.

All in all, it’s a gamble as two years is just not enough time to implement what he’s trying to do.

[Notonthestairs]

@IrisVersicolor

I’ve said this on another thread. The long term ERG plan for the U.K. is a US style low tax low reg economy - Leave EU, then light a bonfire of taxes, regulations, state services.

That was all conceived pre-Covid, pre-inflation, pre-Ukraine, pre-energy price crisis.

They’re too impatient or too inflexible (or too stupid) to slow down and nourish the economy first as a means of funding the tax cuts. So they just went blundering ahead regardless of the fact our economic circumstances.

This is the group who were advocating No Deal and WTO rules trading, so disaster capitalism is their friend. (They think).

Yes, that's a pretty good summary!

[Ostryga]

God they are all such raging cunts!!

I don’t have anything intelligent to add in just so angry with the lot of them.

[Heronwatcher]

They thought they’ll probably lose the next election anyway, so it’s a last gasp attempt to appeal to people’s sense of self (more money in their own pocket). If it works (unlikely but possible) they hang on to power. If not they hand the country to Labour in such a massive state that they might get power back sooner than otherwise.

I think that they were both simply too stupid and arrogant to realise that the markets might see through the plan. Which could have been averted in part if they had at least prepared properly and set out how the cuts are affordable- but they aren’t so that wasn’t possible (anyone who thinks that cutting higher rate income tax at the moment when we’re about to go into winter with no ambulances or trained staff is basically guilty of murder by recklessness).

[Primprom]

“The text sets out their vision for the United Kingdom's future as a leading player in the global economy, arguing that Britain needs to adopt a far-reaching form of free market economics, with fewer employment laws and suggesting the United Kingdom should learn lessons from the business and economic practices of other countries…”

Another wonderful vision, where holidays are gone, maternity leave gone, no employment rights, no NHS, and no safety nets. Now that the pound is almost the same as the dollar, why shall skilled people remain here, I can get double the salary with same hideous society there...

[MojoMoon]

They exist in a tiny social and professional circle of people and have spent most of their careers having ideas about things (in right wing think tanks and in right wing newspapers) but never really having to deliver anything.

Both Kwarteng and Truss have very mediocre careers in the private sector - he was undistinguished during a brief stint at JP Morgan and then went to work for Crispin Odey's hedge fund (odey just made another fortune this week shorting the pound)

They really believe they are clever and their ideas are so superior that they will win. They also have no idea how anything works in the real world.

Their ideas include a radically smaller state - eg much less state provision of services like health, education, social care, benefits, etc. But they can't achieve that by just gradually cutting over time (the Tories have been doing that over the last 12 years)- they are seeking a radical sudden cut in state spending (in order to balance the debts they have started running up) in order to achieve their Utopia.

They also want to cast off restrictions on planning, employment rights, consumer safety, environmental protection - you can read about it in their writings....

In the olden days, it was the left wing that was thought to be seeking to achieve a Utopia.

Turns out the most ideologically driven loons are the Tories.

[PestorPeston]

It looks like he got the sequencing wrong
I presume you have never programmed a computer or tried to use contraception.
Sequencing is paramount.

[BambinaJAS]

@sst1234

Among the usual hysterical responses, there is some sensible debate.

It looks like he got the sequencing wrong, tax cuts before liberalising the economy. That could be intentional given that the GE is only two years away, so getting the difficult things out of the way first, the only embark on market liberalisation. Part of the plan has to be to open the labour market. The economy simply cannot grow with the current labour shortages. So the next difficult thing would be to this, as it will be unpopular.

All in all, it’s a gamble as two years is just not enough time to implement what he’s trying to do.

You are missing the forest from the trees.

No matter what he does the UKs demographic imbalance remains.

There is now way to fix that in two years via "shrinking the state".

What will happen is that the budgetary deficit and BOP will deteriorate. And the market will see the UK as a higher risk.

End result is a very likely Sovereign credit downgrade given how ideological these folks are.

I have seen this in the private sector a few times over my career. Investment managers who refuse to sell to cut their losses because they can never countenance the fact that they could have been wrong. Thats what I see in Kwartemg. A guy who cannot fathom that his ideology could be wrong.

[PestorPeston]

Singapore is efficient. Thimbles are efficient. Use them right and both are wonderful.

Scale it up and I have my fist stuck in a grande mug.

Theory can be wonderful, reality has tempered many a leader.

[Elodie09]

@MojoMoon Good post.

[UserOneSquillion]

Why aren’t they looking at other countries who have done similar? America is an economic hellhole for the poor or unwell. Scandinavia or Denmark on the other hand thrive. I know where I’d rather be.

[sst1234]

@UserOneSquillion

Why aren’t they looking at other countries who have done similar? America is an economic hellhole for the poor or unwell. Scandinavia or Denmark on the other hand thrive. I know where I’d rather be.

Yes it’s such a hellhole that millions are prepared to die to get in. Such a hellhole that the entire world’s currencies are dependent on what the dollar does. Such a hellhole that Americans can heat their homes this winter and are wondering what the fuss is all about in Europe. Such a hellhole that the economy is doing so well.

[PestorPeston]

@sst1234 energy is sold in $
We can not replicate this, we should not pretend that we could.

[Notonthestairs]

User specifically referred to the poor and unwell.

[BambinaJAS]

@sst1234

Yes it’s such a hellhole that millions are prepared to die to get in. Such a hellhole that the entire world’s currencies are dependent on what the dollar does. Such a hellhole that Americans can heat their homes this winter and are wondering what the fuss is all about in Europe. Such a hellhole that the economy is doing so well.

Not quite.

It is "doing well" for the Top 20%

Bottom 30% are being squeezed financially.

[IrisVersicolor]

@UserOneSquillion

Why aren’t they looking at other countries who have done similar? America is an economic hellhole for the poor or unwell. Scandinavia or Denmark on the other hand thrive. I know where I’d rather be.

They have, they’re obsessed with the US - that’s exactly where they want to take us.

If the ERG had its way we would have ditched trade ties with the EU and replaced it with a mega US deal. Except outwith the EU we’re not much use to the US so they don’t care.

[sst1234]

@PestorPeston

@sst1234 energy is sold in $
We can not replicate this, we should not pretend that we could.

Well, how about being a net exporter of energy, like the US. It really works. We should try it sometime.

[TheHateIsNotGood]

I'm no economist at all but I recognize the structure of the thinking behind this 'move' - it's similar to trying to 'jolt' a heart back to life or jumping off 'the precipice' (metaphorically not literally) to effect change. Or putting an aircraft into a nosedive to create speed before you pull up.

Creative, new thinking does have it's place in the practical world, including Economics. Not every action has to be based on pre-existing theories with predetermined results.

Kwasi's method is worth a try I think.

[Everylittlethingsgonnabealright]

Hope your name has prophetic value in this mess we are in :)

@Primprom haha! It does in every area of life… ‘pain is inevitable, suffering is optional’. There’s an underlying okay-ness to life whatever is happening on the surface. Listen to Eckhart Tolle if you want reassurance :)

[IrisVersicolor]

@sst1234

Yes it’s such a hellhole that millions are prepared to die to get in. Such a hellhole that the entire world’s currencies are dependent on what the dollar does. Such a hellhole that Americans can heat their homes this winter and are wondering what the fuss is all about in Europe. Such a hellhole that the economy is doing so well.

Die trying to get in from developing countries. On the punt they might end up the king of Wall Street rather than the cleaners.

It’s polarised in terms of wealth and not one anyone would want to be poor in.

[IrisVersicolor]

@TheHateIsNotGood Kwasi's method is worth a try I think

How’s d’you think it’s going?

[lljkk]

My crude impression is that ... sustained low inflation & low interest rates bring stability, thus encouraging long term investment.

The biggest enemy of economic growth is instability. No one invests for long term in unstable places. I don't understand how Trussonomics can put so little value on low interest rate environment.

Kwartang thinks that tax cuts will spur growth, & has completely lost sight of the value of economic stability being more important. I suppose like Cummings, KK thinks a spell of upheaval is a reasonable price to pay until a new equilibrium is established, the one where us average people are not longer soft & spoilt.

[red4321]

Among the usual hysterical responses, there is some sensible debate.

There is. I also work in the financial services industry and have found some of the posts really interesting to read and digest.

(Although my heart has sunk at the arrival of one poster from another thread).

I believe there was a rationale, however misjudged and ill-timed the fiscal statement has ended up being. This week has been a total train wreck in the bond and currency markets. Good news for Crispin Odey and his peers , not so good for anyone planning to visit the US on holiday in the next few months.

[BambinaJAS]

@TheHateIsNotGood

I'm no economist at all but I recognize the structure of the thinking behind this 'move' - it's similar to trying to 'jolt' a heart back to life or jumping off 'the precipice' (metaphorically not literally) to effect change. Or putting an aircraft into a nosedive to create speed before you pull up.

Creative, new thinking does have it's place in the practical world, including Economics. Not every action has to be based on pre-existing theories with predetermined results.

Kwasi's method is worth a try I think.

"Big Bang" approaches usually end up with even more severe consequences because the downside risks are much higher.

Nobody in Finance would ever do a stunt like this one.

You would have to be insane or an ideological nutjob.

Also, worth saying:

Kwarteng has zero stake in this. He will not go broke if this goes sideways. He will simply go back to being a backbech MP with zero credibility (so, not much change).

There is a reason why start ups ask for equity buy-ins (stock) from prospective executives. Its to avoid them trying insane things which would also make them poorer.

I have been in risk and finance for many years, and I cannot stress enough that the danger signs for the whole country are flashing red. This will materially empoverish the whole country.