Can someone do a wellness check on America’s supply-side tax-cutters in the wake of Liz Truss’s decline and fall? From the American Enterprise Institute to the Wall Street Journal editorial page, lowering marginal tax rates has long been the prescription for pleasing “the market” and setting Western societies on the path to growth and prosperity. Here was a UK premier proudly advancing their preferred agenda—and “the market” revolted, triggering the collapse of her government.
This presents an existential question for these institutions: Was the purportedly pro-growth tax plan wrong, or was the market?
For most people, there is no quandary here. Tax cuts can be lousy, market signals don’t always prove value. But either thought negates a bedrock tenet of market fundamentalism: As former US Ambassador to the United Nations Nikki Haley has professed, “as we are dealing with changes in our economy, tax cuts are always a good idea.” According to historian (and former Journal editorialist) Amity Shlaes, meanwhile, “markets do not fail us. We fail markets.” So what happens when a tax cut fails the market?
Some have sought to argue that the market has gone crazy. “Sometimes Mr. Market gets momentarily emotional and overreacts,” suggested AEI’s Jim Pethokoukis. His colleague Michael Strain wrote that markets had “wildly overreacted.” Others inside Truss’s Tories blamed an “elite” that “does not understand the potential of tax cuts to stimulate growth,” as the Financial Times reported.
The most comically over-confident and oblivious response came, as it often does, from the Journal’s editorialists. In their telling, Truss and her economic plans were “being made the scapegoat for the economic policy blunders that the ruling Conservatives have made over 12 years in power, and especially since 2019 under previous Prime Minister Boris Johnson.” It was those prior policies, and not Truss’s present ones, that markets were rejecting when they crashed in response to Truss’s policies.
“The dumbest argument is that Ms. Truss’s fall is a warning to U.S. Republicans not to cut taxes,” concluded the Journal. “If Republicans want to end up like the Tories, they’ll follow the Boris Johnson-Rishi Sunak tax-and-spend model.”
Sadly, the supply-siders have learned nothing from their repeated substantive and political failures. They will learn nothing. They have taken to heart Good Housekeeping’s advice in “How to Deal With Rejection in a Healthy Way,” which emphasizes: “Don’t let rejection stop you from trying again.” They will blame the market, they will blame the elites, they will blame non sequiturs. What they won’t do is reconsider their dogmatic commitment to tax cuts.
Strain, AEI’s director of economic policy, provides an interesting case. He has just published an admirable call in the Financial Times to “stop obsessing about tax cuts” and “update an agenda that risks being stuck in the Reagan and Thatcher era,” but less than two weeks ago, with Truss’s meltdown already underway, he lauded her leadership as “a model that American conservatives could follow.” Notwithstanding her actual performance, he wrote then, “messages matter, and, looking through the turmoil, Truss is saying the right things”—for instance, her comments at a Conservative Party conference earlier in the month that “I have three priorities for our economy: growth, growth, and growth.”
Growth is good, but there is nothing conservative about making growth all three of your economic priorities. Nor, as has become clear in recent decades, are tax cuts a formula for generating growth. For AEI and the Journal editorial board—leaders of what Strain has artfully termed “the center-right heavyweight economic policy community”—it will always be 2014, a year in which they believed it was still 1981.
Now we have a very concrete illustration of what they would deliver: the equivalent of Liz Truss’s premiership on this side of the Atlantic. Progressives, for obvious reasons, delight in the thought. Conservatives, for their own political survival as well as the nation’s well-being, must expunge such nonsense from their economic thinking for good.