The old monetarist doctrine that inflation is caused simply by central banks printing too much money has been convincingly refuted by experience, first in Japan from 1990 and then globally since 2009. Nobody really understands why an economy with declining real wages and weak demand can experience a continuous process of inflation, as opposed to a one-off jump in prices caused by supply disruptions, a war or a trade embargo. Stagflation is the biggest mystery in economics.
Join us for our next virtual event on September 14th, Abandoned Futureto hear leading global experts discuss how public policies, finance and technology can be leveraged to mitigate the dangers of a hotter world. Because when inflation is caused by “too much money chasing too few goods,” it is bound to be exacerbated by additional tax cuts and subsidies to the purchasing power of consumers and businesses.īut is it conceivable that Truss’ unorthodox response to stagflation could work? Īccording to conventional economic thinking, the Truss-Kwarteng borrowing-issuing experiment will spell disaster. Kwarteng will be Britain’s first Treasury Secretary to hold an economics-related PhD, and Kwarteng’s specialization in economic history, rather than the sterile mathematical modeling that now dominates the discipline, will give him the intellectual confidence to overrule Treasury and BOE officials whenever Truss requires. But Truss wants to defy orthodoxy on a much larger scale, as does Kwasi Kwarteng, her close friend and future Chancellor of the Exchequer. Many other Western leaders are turning to unorthodox policies such as tax cuts and energy subsidies to ease the pain caused by the Ukraine war and sanctions against Russia. Even more controversially, it wants to cut taxes, spend huge sums on energy subsidies, increase defense spending by 1% of GDP and immediately add another £100bn ($116bn or 5% of GDP) to the budget deficit while taking the blame in return Bank of England gives for any resulting inflation. Judging by her leadership campaign, she will provoke further conflicts with Europe, intensify confrontations with China, increase Scottish nationalism and oppose the United States on Anglo-Irish relations. Truss appears to have faced similar abuse. Here’s what the British public is saying: According to the latest poll, David Cameron, Theresa May and Boris Johnson all hold post-war records for having ‘done a poor job as Prime Minister’, with each subsequent Tory leader rated worse than the one before. Truss’s three predecessors were the worst Prime Ministers in modern British history. To make matters worse, the British battalion of worries is also overwhelming its politics. The UK is cursed with the highest inflation in the G7, the sharpest fall in real wages, and the largest budget and trade deficits. The irreversibility of globalization Hiroshi Watanabe/Getty Images.Will the dollar’s rise end in whiplash? ASIF HASSAN/AFP via Getty Images.Co-branded collaborations with print and online publications are also possible. Beyond commentaries, Project Syndicate members can access multimedia content, long-form analysis, interviews, magazines, book reviews, and more. Project Syndicate offers a wide range of usage options, from thematic content feeds to exclusive author subscriptions, so that members can choose the approach that best meets their editorial needs. Gernot Wagner Gernot Wagner Climate Economist at Columbia Business School.Nancy Qian Nancy Qian Professor of Managerial Economics and Decision Sciences at Northwestern University.Reinhart Chief Economist of the World Bank Nouriel Roubini Nouriel Roubini Professor Emeritus of Economics at New York University’s Stern School of Business.Rajan Former Governor of the Reserve Bank of India Kennedy School of Government and Director of the Harvard Growth Lab Ricardo Hausmann Ricardo Hausmann Professor at Harvard University’s John F.Dambisa Moyo Dambisa Moyo International Economist.Mariana Mazzucato Mariana Mazzucato Director of the UCL Institute for Innovation and Public Purpose.Anne-Marie Slaughter Anne-Marie Slaughter CEO of New America.And they all bring to bear the credibility, diversity, and high-quality analysis that readers demand. They include Nobel laureates, heads of state, grassroots campaigners, and academic specialists in fields ranging from economics and politics to the natural sciences and cultural studies.
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