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Will Truss Rehabilitate Keynes?

According to conventional economic thinking, incoming British Prime Minister Liz Truss’s economic experiment with borrowing and spending will produce disaster. But, given how mysterious stagflation is, Truss’s unorthodox response to it should not be dismissed out of hand.

LONDON – The United Kingdom finally has a new prime minister, but will Liz Truss improve the dismal outlook for the British economy and political life? The conventional answer is no. As Shakespeare said, “when sorrows come, they come not single spies but in battalions.” That is certainly true of Britain today.

The UK is cursed with the G7’s highest inflation, steepest decline in real wages, and biggest budget and trade deficits. Making matters worse, Britain’s battalion of sorrows also overwhelms its politics. Truss’s three predecessors were the worst prime ministers in modern British history. So says the British public: According to the latest polling, David Cameron, Theresa May, and Boris Johnson all score postwar records for doing “a bad job as Prime Minister,” with each successive Tory leader rated worse than the previous one.

Truss seems to face similar opprobrium. Judging by her leadership campaign, she will provoke more conflicts with Europe, aggravate confrontations with China, intensify Scottish nationalism, and defy the United States over Anglo-Irish relations. Even more controversially, she wants to slash taxes, spend vast sums on energy subsidies, ramp up defense spending by 1% of GDP, immediately adding another £100 billion ($116 billion, or 5% of GDP) to the budget deficit while blaming the Bank of England for any resulting inflation.

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