I think the recent political turmoil affecting the government stems from two key things that they’ve done:
Advocating economic growth as a policy ideal without providing a coherent plan to deliver it.
Neglecting the difference between campaigning and delivering, and buying into the myth that fiscal discipline can be abandoned under certain circumstances (permitting large increases in public debt in a pandemic, when interest rates are very low, is fiscally sensible. Unfunded tax cuts outside of a crisis situation, is not).
Although I am surprised, and still a little confused by the strength of the market reaction, I am also a little reassured that the Cameron/Osborne’s prioritisation of fiscal consolidation has been somewhat vindicated. (One can argue on whether austerity was the right way to achieve that, but they were not wrong to warn about the dangers posed by markets losing confidence in credible public finances). That said, the new Chancellor’s strong signal of a return to pragmatic attention on short term tax fudges as a mean to permit limitless spending intentions is a real shame. I liked Truss’s optimism, and agree that there are lots of ways we can move onto a higher growth trajectory. We shouldn’t fall back into a low growth mindset that leaves the UK on a slow march to social democratic tax burdens and substandard infrastructure and public services. Here are what I would priorities as part of a quick and clear growth recipe:
Build homes - we need to unlock the housing market to allow people to move where their labour is most productive and start to unwind the unhealthy concentration of personal wealth within property. The fix must come from the supply side and focus on planning reforms that enable more houses to be built.
Generate power - our shift toward clean energy and away from geopolitical hostility has always had an obvious solution, which is investment in nuclear power. The fracking debate seems an unfortunate distraction where the real focus should be on SMRs and fusion reactors.
Boost trade - the EU constitutes our largest, richest and closest market and finding ways to mitigate the costs of Brexit are crucial for future growth prospects.
Encourage talent - the best way to mitigate the problems associated with a demographic trend of an ageing population is encouraging more immigration. For high skilled labour this is win-win and
The above would contribute to a quick and clear impact on growth, but they aren’t necessarily easy. There are reasons why existing inefficiencies and problems become entrenched, and there seems to be a reduced appetite to take them on. I am contributing to the first problem mentioned above with such a rudimentary list of ideas. The real difficulty is implementation and the politics of reform. And regrettably good economics is often bad politics. But one thing we can do is unite around a growth agenda, and publicise the good ideas that would contribute to that.