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The Right Policy Mix To Get Us Out Of Stagflation

Photographer: Simon Dawson / No10 Downing StreetPosted by: Foreign, Commonwealth & Development Office and The Rt Hon Elizabeth Truss MP, OGL 3 <http://www.nationalarchives.gov.uk/doc/open-government-licence/version/3>, via Wikimedia Commons

It’s good to see that the two great English-speaking nations are moving their cavalries in the same direction.

So, the U.S. midterm elections cavalry arrived early in London. What do I mean by that? Well, the new British prime minister has laid out a terrific supply-side economic growth plan that looks a lot like the basic thrust of Representative Kevin McCarthy’s “Commitment to America.”

Let’s start with Prime Minister Truss. She is slashing tax rates and deregulating energy. I love it that the liberal business media (you know who I’m talking about) is trashing her plan.

That tells me Ms. Truss has it exactly right. She intends to permanently reduce tax rates, personal income, corporate income, and payrolls. Plus, she’s ending the ban on fracking put into place by her predecessor, Boris Johnson.

In fact, she is basically repealing Mr. Johnson’s entire agenda, which is a good thing. Mr. Johnson was raising taxes, with big social spending, and went with the Green New Deal in a huge way. The results were devastating. Even though he’s a Tory, he sounded just like President Biden.

As far as these phony deficit moaners from the business media, supply-side tax cuts and deregulation will over time produce so much new growth and so much less tax avoidance that the revenues will come pouring in to finance the tax cuts — and then some.

In other words: the Laffer curve. What does that tell you? By the way, Ms. Truss is basically operating a Reagan-Thatcher-Trump economic policy.

Also, don’t forget: However belatedly, just like our Fed, the Bank of England is raising rates and tightening money. Now, the program’s implementation will take some time, but, essentially: Tight money to strengthen the currency, along with low tax rates to rejuvenate economic growth incentives, is exactly the right policy mix to get out of the stagflation that is spreading throughout the world.

Here in America, the Fed seems to have the tight money, strong dollar story right, but there are no tax cuts or deregulation for supply-side growth. That’s a big problem — one that, if not fixed soon, will lead us to a deeper bear market recession.

I hope Prime Minister Truss does not delay the tax cuts, which is a mistake President Reagan made. The sooner her plan is implemented, the faster Britain will climb out of the doldrums.

Meanwhile, congressional Republicans published their “Commitment to America” and it looks like a pro-growth, supply-side agenda to me. The GOP platform would tackle inflation by curbing excess spending, cutting taxes, and moving back to President Trump’s deregulation policies.

Like Ms. Truss, Mr. McCarthy and company would end the ban on leasing, permitting, fracking, and pipelining, to move back to energy independence. They’re also putting a premium on combating crime and illegal immigration. Plus, they intend to advance a parents’ bill of rights, make healthcare more transparent, with greater choice and competition, along with protecting constitutional freedoms — including free speech, religious freedom, and safeguarding the Second Amendment. Plus, they will leave abortion issues to the states, as per the recent Supreme Court decision.

Also, leave election law to the states, with voter ID and nonpartisan observer access. This is a very common-sense-oriented package of policy commitments. Inflation and crime are the headliners. Those issues are going to decide the midterm elections. Just as Ms. Truss is overturning Mr. Johnson, the GOP seeks to overturn Mr. Biden.

Historically, after some modest disagreements in the 18th century, Britain and America have had a special partnership as the world’s leading democracies. Think Magna Carta and the constitutional rule of law. So, it’s good to see now that the two great English-speaking nations are moving their cavalries in the same direction.

Larry Kudlow was the Director of the National Economic Council under President Trump from 2018-2021. His Fox Business show "Kudlow" airs at 4 p.m &. and his radio show airs on 770 ABC from 10:00 a.m. to 1:00 p.m.

From Larry Kudlow’s broadcast on Fox Business News.

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