This is an outstanding article by James Forsyth, political editor at the Spectator. Considering that he’s a close friend of Rishi Sunak and that he actively supported Sunak against Liz Truss, the new UK prime minister, it’s very powerful. I have closely followed James’ insights over nearly a decade and for me they have always been remarkably perceptive.
Despite his bias in favour of Sunak, this latest article is remarkably dispassionate. Open the link to read it:
I too must at this stage declare my bias. Between Sunak and Liz Truss, I have been a passionate Sunak supporter. So I too will supress my natural suspicion of Liz Truss and look for redeeming features.
James Forsyth’s articles simply touches all the bases in terms of challenges facing the Liz Truss – he leaves the reader to reflect on the risk of success. I will return to the subject of risk presently.
For me, there are a number of related threads:
Firstly, the concept of a country borrowing its way out of difficult is not new. It’s well covered in Keynesian Economics. Post war, it was very popular, especially with socialist governments. Ineffective application of the doctrine led directly to the hyper inflation of the Seventies. This was finally reversed when Regan and Margaret Thatcher led the way to alternative economic policies. The concept works well when Governments invested in robust capital projects which have a strong economic return financed by low cost government borrowings. Most governments simply lost control, with politically chosen projects chosen despite protests of seasoned financial observers. Another more recent example is China, following the Subprime Crisis. Anyway, returning to the Truss era, there are clearly no projects that have been defined in any substance other than motherhood aspirations of less red tape etc. This is deeply worrying.
Secondly, the Truss team are largely lightweights, with no serious record of achievement, either individually let alone collectively. These are political flunkies. What’s most obvious is the remaining heavy-hitters are on the back benches, out of government, or they have retired.
Thirdly, there is serious concern that Truss will win over her MPs in parliament, yet alone the wider electorate with an election looming in couple of years.
Fourthly, there is little consideration of delivery, with possibly the most radical change since the National Health Service was introduced after WWII – indeed from the beginning that failed to match blueprint of its designers. Look to the record of major Government defense or technology projects, with huge overspends, parliamentary enquiries and cries of cronyism.
Fifthly, with the absence of robust costing, there’s certainly seems little thought of risk assessment other than ‘speculative in the round’.
Finally, it’s worth dwelling on the wider economic and geopolitical context. Interest rates are rising rapidly to deal with inflation, triggered by massive financial expansion to redress the economic carnage caused by Covid. Unfortunately, it is necessary to add political risk because of global tensions related to Ukraine and Taiwan. Political risk also penalizes ‘lightweights’ diverging from economic orthodoxy as espoused by the likes of the International Monetary Fund or the leading independent central banks of the world. Collectively, risk specialists would focus on the transformation risk.
If you are unconvinced, simply wait and watch how financial markets behave. Watch for speculators taking a punt on Sterling, and the UK’s major quoted businesses.
Please correct me if you disagree.