Explain Liss truss policies to me

Of course it was very odd. Her approach to tax and growth were those of what an A level economics student would come up with when they discover neoliberalism and decide trickle down shock therapy and a bit of fairy dust will create economic growth. Meanwhile she was proposing excessive unfunded spending when the country’s fiscal situation was a bit shaky.

I predicted Liz Truss would be the next PM several months before Johnson resigned because I saw in her similar qualities that Johnson had. She did superficial messaging and self-promotion very well. However she has no depth. She is no visionary of political economy, Her intention was simple: she said the right things to become PM. She had no goal beyond that.

Liss Truss was PM for a very short time, but during that time she initiated several strange economic policies. I know what the effect of the policies were. What I do not understand is the intention. What exactly was she hoping to achieve with her policies? How did she think that what she was doing would achieve the effects she wanted?

Reading the news at the time, I thought it was very odd. It still remains a sort of unsolved riddle.

So basically most of the tax changes were either things which the government has kept or which despite the faux noise, would likely be in the Labour manifesto (Reeves is pro-establishment and most policies were tinkering and not radical), where the policies fell down were that the optics looked horrid (trying to abolish the upper rate when inflation was soaring already) and she also never bothered to fund them. The later is what set the debt markets off (debt markets don't care what your policy is, only that its paid for).

In the end she was elected by only ~25% of MP's so lacked the support to ride it out and by not funding the changes, she could not count on the support of those fiscally austere MP's.

The intention was basically to increase investment and consumption, potentially increasing trend growth to about 2.5%.

There's a lot of hate (rightly) but its mainly due to poor optics. She only really brought forward a deterioration in GILT yields that lasted ~60 days and the media portraying banktrupcy don't really understand how exchange rates and global markets work so the impact was bad but overblown and not related to the actual policy impacts. If she'd have gone ahead and just dumped the Income Tax changes (that's what was expensive and looked bad) then she'd have probably gotten away with almost everything with minimal polling impact.

Liss Truss was PM for a very short time, but during that time she initiated several strange economic policies. I know what the effect of the policies were. What I do not understand is the intention. What exactly was she hoping to achieve with her policies? How did she think that what she was doing would achieve the effects she wanted?

Reading the news at the time, I thought it was very odd. It still remains a sort of unsolved riddle.

Liss Truss was PM for a very short time, but during that time she initiated several strange economic policies. I know what the effect of the policies were. What I do not understand is the intention. What exactly was she hoping to achieve with her policies? How did she think that what she was doing would achieve the effects she wanted?

Reading the news at the time, I thought it was very odd. It still remains a sort of unsolved riddle.

To be fair to her, she did read economics at Oxford so I don't think it was that obscure. The idea is simple:


What I don't understand is where the obsession with productivity has come from. In a service based economy you can't get improvements of productivity in the same way you can in manufacturing. In a factory you install a new machine that makes widgets twice as fast / cheaply and watch that productivity sore.

But how do you achieve that in a hospital. A nurse currently looks after 8 patients. It is physically impossible to look after 12. Similarly, you can't half the number of waiters and chefs in a restaurant and see profits sore. I can't help feel we need new economic models for the new reality of our economy,

To be fair to her, she did read economics at Oxford so I don't think it was that obscure. The idea is simple:


What I don't understand is where the obsession with productivity has come from. In a service based economy you can't get improvements of productivity in the same way you can in manufacturing. In a factory you install a new machine that makes widgets twice as fast / cheaply and watch that productivity sore.

But how do you achieve that in a hospital. A nurse currently looks after 8 patients. It is physically impossible to look after 12. Similarly, you can't half the number of waiters and chefs in a restaurant and see profits sore. I can't help feel we need new economic models for the new reality of our economy,

The problem is Liz Truss is a Prime Minister who inherited a mess. This is because the UK was in recession, and the Tories had terrible polls. As a consequence, something radical needed to be done to grow the economy and sway public opinion.

Basically the idea is automate the jobs, no different to a factory. Your supermarkets become like Amazon ones at the extreme. In healthcare you can't do much in an old folks home but in a hospital you might have the time to replace a liver ect..

But yeah, it's probably one of the reasons service sector economies struggle to achieve comparable growth.

In reality, the government has finally woken up to need for productivity enhancing policies in budgets (after virtually neglecting them for more than a decade). Without productivity policies, the OBR downgrades its forecast of potential output, which cuts their real growth forecast and raises the inflation and interest rates forecast, which further constrains real growth. So in order to actually spend more money in real terms going forward, you genuinely have to implement productivity enhancing policies otherwise you get into a bit of a doom loop where poor productivity cuts what you can spend, less to spend on things like education and public investment means your productivity forecast falls, which cuts your revenue forecast, and so on.

The big issue is that the doom loop is very very difficult to reverse. The OBR forecast horizon is only 5yrs, so whenever you pursue a productivity enhancing policy, you get all the costs upfront but the benefits (e.g. higher growth and tax revenue) are unlikely to show up in the 5yr time horizon. So you essentially have to pursue a bunch of policies that really constrain the government (which governments won't want to do), you do this for 10yrs or so, then you get a country with strong productivity growth, which is the only sustainable source of improvements to living standards. So it's very difficult for a government with political incentives (and a dumb institutional framework like the OBR has) to correct the ship's course.

But I do get where you're coming from. I hear lots complaining about very poor public sector productivity, but when you really dig down into how the ONS calculates it, it becomes a bit farcical. Like education output is basically a function of number of students and their grades are the productivity bit, except student numbers are constrained by demographics and GCSE grades (what the ONS uses) is always marked against a curve and the ONS adjusts for grade inflation, so difficult to see how you really improve education productivity significantly.

I think it's a bit easier in the private sector. In production it's very obvious. Harder in services but you'd expect a workforce with better human capital to be more productive, and together with more advanced software, this should boost revenue per worker in an ideal world.

Good post that. I completely agree. So the question is how do you improve productivity? I note the government has given tax breaks for inward investment but that only really hits manufacturing.

Maybe we have to accept that the only true way of growing the economy is to grow the population or accept that we are now in for years of stagnant growth / decline?

Good post that. I completely agree. So the question is how do you improve productivity? I note the government has given tax breaks for inward investment but that only really hits manufacturing.

Maybe we have to accept that the only true way of growing the economy is to grow the population or accept that we are now in for years of stagnant growth / decline?