As Truss Falls, Does BoJo Loom?

Things are moving so fast in British politics that by the time this post goes to (digital) press, it's possible the U.K. will have gone through several more prime ministers, and Meghan Markle will be crowned queen.

Here are the basics: Newly minted prime minister Liz Truss has resigned after just 44 days on the job, the shortest ever term for a prime minister. She came into office hard on the heels of Boris Johnson, who resigned after he was caught lying about violating his own government's Covid restrictions on several occasions.

Determined not to be merely a caretaker P.M., Truss immediately initiated a bold -- some would say "foolhardy" -- plan to transform the British economy by slashing taxes across the board, with the biggest cuts for businesses and the wealthy, while also increasing spending. Much of that spending would go towards an energy "price freeze," which would cap the amount that Brits would pay for heat and electricity going into what is looking to be a brutal winter for heating and electricity rates. The bill for such a plan was projected to run into the hundreds of billions of pounds, but her hope was that it would it would keep the heat off her government while her Thatcher-on-steroids tax plan supercharged the economy and brought about elephantine growth.

The Iron Lady she wasn't.

Now here's what actually happened. The markets were disturbed by these sudden movements, and by the massive amount of new debt the government would have to take on to make this all work, especially at a time of significant and rising interest rates. Sterling tanked and bond markets went crazy.

Truss vowed that she would not change course. Then she started changing course, with new back-tracking announcements becoming an almost daily occurrence. She sacked Kwasi Kwarteng, her right-hand man and Chancellor of the Exchequer, in a desperate attempt to hang onto power, and appointed the establishmentarian, globalist, anti-Brexiter Jeremy Hunt to take his place. Hunt promptly got to work dismantling the rest of Truss's program.

Eventually the pressure got to be too great. After a tense vote on a Labour bill whose object was to prevent the government from reintroducing fracking, which the Tories won, despite several notable defections, the humiliated Truss was compelled to offer her resignation.

What is so strange about all of this is that it is easy to imagine a counterfactual scenario where Truss turned out a success. She ran for leadership as a continuity candidate: Boris, but without the erraticism, dishonesty, and drama. That was a pretty attractive proposition! Had she actually governed that way, pushing back on some of the negatives of the Johnson government while generally trying to steady the tiller, she might have had a long and illustrious career.

Kicking Boris' environmentalism to the curb would have been a good start -- Britain has a lot of natural gas, but environmentalists have been lying to the people about natural resource extraction for years. The politics site Guido Fawkes, for instance, recently wrote about a speech in the House of Commons by former Labour leader Ed Miliband about the possibility that fracking would bring with it earthquakes registering a 4.6 on the Richter scale, which could crack the plaster in houses and cause notable damage. This is ridiculous -- though fracking has been known to trigger tremors, they're rarely strong enough to be felt, only to be detected by powerful instruments. The strongest one ever, according to Fawkes, was a 2.9, which is comparable to "a pound of sugar being dropped on a kitchen floor."

Ask not for whom the bell tolls.

Boris famously leaned into this misinformation, including in his farewell speech as prime minister. A successful Truss could have checked it, while noting the absolute necessity of developing domestic energy sources in light of growing scarcity. Doing so wouldn't have required abandoning all Boris' plans. It could even have reinforced some of them. There's an obvious match between his "leveling-up" project, meant to improve those forgotten, working class regions of England's north (where he scored a stunning success in the last election), and the jobs which an expanded resource sector could provide.

At the Telegraph, Lord Frost even argues that Truss could have gone ahead with her own program, had she actually laid the groundwork for it over time:

Truss tried to deliver worthwhile reforms and set the country onto a much-needed new direction. I supported this policy direction and still do. But it was rushed and bungled. The markets were spooked. The mistakes were opportunistically seized on by her opponents to undermine her leadership, to blame Brexit, and to stop the party getting out of the social democratic tractor beam of the past few years.

In any event, yet another party leadership race will be held as soon as possible to determine who will govern, with Rishi Sunak -- the wealthy establishmentarian who came in second to Truss last time -- seen as the front runner. Unless, that is, Boris Johnson decides to throw his hat into the ring, as voices both inside and outside parliament have started calling for him to do.

Unfortunately for the Conservative Party, polling seems to indicate that the British people are getting sick of this ongoing Tory psychodrama. The Labour Party has started calling for an early election, which they are in a good position to win. And losing might ultimately be good for the Tories -- having squandered a huge mandate with Johnson, they could do with a good long stretch in opposition to figure out what they actually stand for.

Still, as Labour's policies; fiscal, social, and environmental; are so much worse than those of the Tories, the country as a whole would probably be much better off if they would just get their act together. Don't hold your breath.

THE COLUMN: To Save America, Repeal the 16th Amendment

The U.S. hit twin milestones recently : federal tax collections set a record for siphoning money out of your pockets, while in the meantime the national debt set a record as well. Oh yes, and inflation—so recently brought to heel by the Democrats via the Inflation Reduction Act!—is soaring as well. Let's look at the numbers. First taxes:

The federal government collected a record $4,408,452,000,000 in total taxes in the first eleven months of fiscal 2022 (October through August), according to the Monthly Treasury Statement. That was up $525,658,170,000—or 13.5 percent--from the then-record $3,882,793,830,000 (in constant August 2022 dollars) that the federal government collected in the first eleven months of fiscal 2021. The record $4,408,452,000,000 in total taxes that the federal government collected in the first eleven months of this fiscal year, included a record $2,404,419,000,000 in individual income taxes.

Bringing all Americans together every April 15.

Now, have a look at the national debt. Please do not confuse this with the deficit, which is how much Washington goes into additional hock each year even as it is mugging you. This, rather, is the total of all the deficits in our nation's history:

America’s gross national debt exceeded $31 trillion for the first time on Tuesday, a grim financial milestone that arrived just as the nation’s long-term fiscal picture has darkened amid rising interest rates. The breach of the threshold, which was revealed in a Treasury Department report, comes at an inopportune moment, as historically low interest rates are being replaced with higher borrowing costs as the Federal Reserve tries to combat rapid inflation. While record levels of government borrowing to fight the pandemic and finance tax cuts were once seen by some policymakers as affordable, those higher rates are making America’s debts more costly over time.

How much is $31 trillion? Written out, that comes to 31,000,000,000,000, or 31 × 1012. A mere one percent of that is $310 billion, which was the federal deficit alone in 2019.

Finally, here are the current inflation numbers, in the wake of the thoroughly dishonest Inflation Reduction Act: "The current rate of inflation in the United States is 8.26% (for the 12 months ending on Aug 31, 2022, down from 8.52% in July)." Some reduction, like saying your house is a little less on fire this month than it was last month. It's still on fire.

Too much is never enough.

The point is by now beyond obvious: with numbers like these, the Republic cannot continue until it gets its fiscal house in order, which will be never. And why should it? In addition to everything else wrong with the Robinette administration—the Afghanistan disaster, the cratered economy, widespread social unrest including soaring violent crime, the literally insane rush to war against Russia in order to protect Biden Inc.'s corrupt family business in the Ukraine—the financial wizards in Washington are also in the grips of a madness known at Modern Money Theory, which is the fiscal incarnation of the Left's overall embrace of Marxist Frankfurt School Critical Theory:

Modern Monetary Theory (MMT) is an economic theory that suggests that the government could simply create more money without consequence as it's the issuer of the currency, according to the Federal Reserve Bank of Richmond. As part of this theory, the thinking is that government deficits and national debt don't matter nearly as much as we think they do. 

Instead of relying on tax revenue or borrowing to support federal government spending, according to MMT supporters, the government can simply create more money instead. This is a big departure from how many economists think about government spending and has become a popular alternative theory as discussions about debt and government spending hit the national stage. 

This is the current thinking of our government and, when you stop to think about it, has been for decades. One warning sign came early, when the American space program, so proudly having risen to President Kennedy's challenge to put a man on the moon before the end of the 1960s, effectively ceased to exist after December of 1972, with Richard Nixon freshly re-elected in one of the greatest electoral landslides in history. (Spoiler alert: he'd be deposed two years later in America's first political coup.)

As the full effects of the various Sixties' revolutions began to take effect, it was deemed more "moral" to direct our money to social goals, including welfare and the various entitlement programs that took root like kudzu in Washington and gradually, in the name of  "helping," choked the life out of the old can-do America and replaced it with gimme America. 

"Without a friend."

But the real blow to America's fiscal house—and, more important, its commitment to personal liberty—came just over half a century earlier with the 16th Amendment, proposed in 1909 and ratified in 1913. Proposed by the nascent "progressive" movement during the William Howard Taft presidency, and ratified by the states in February 1913, after the election of Woodrow Wilson (in which the GOP split the vote when Teddy Roosevelt, wanting his old job back, ran on the Bull Moose ticket and cost Taft re-election) but prior to Wilson's inauguration. 

"Democratic Party Platforms under the leadership of three-time Presidential candidate William Jennings Bryan, however, consistently included an income tax plank, and the progressive wing of the Republican Party also espoused the concept," notes the National Archives, but conservatives had always managed to squelch it. Until:

In 1909, progressives in Congress again attached a provision for an income tax to a tariff bill. Conservatives, hoping to kill the idea for good, proposed a constitutional amendment enacting such a tax; they believed an amendment would never receive ratification by three-fourths of the states. Much to their surprise, the amendment was ratified by one state legislature after another, and on February 25, 1913, with the certification by Secretary of State Philander C. Knox, the 16th amendment took effect. 

Yet in 1913, due to generous exemptions and deductions, less than 1 percent of the population paid income taxes at the rate of only 1 percent of net income.

That was then, this is now. What seemed, or was made to seem (which is more like it) a good idea at the time has turned out to be one of the four principal "progressive" death-blows against the original Constitution. (We'll consider the other three in subsequent columns.) What has happened since the U.S. abandoned its prior reliance on excise duties and tariffs, which served the nation well for the first 140 years of its existence, is that the Congress, with the now-infinite resources of the American taxpayer and the Treasury's printing presses, has entirely abandoned all fiscal propriety—the inevitable consequences of an income, as opposed to a tax on goods and services.

To take just one example, in 1991, Lowell Weicker, the Republican governor of Connecticut, instituted a "temporary" income tax in a state that famously had had none. Pitched as "middle-class tax relief" that would make the rich "pay their fair share," the tax remains with us still:

Weicker pitched a sunset provision for state income tax multiple times in 1991, and the 1992 budget created a tax commission that “could conceivably ‘sunset’ the income tax in 1993,” according to the Boston Globe. According to a July 12 article in the Hartford Courant, Weicker’s budget “includes one unexpected wrinkle – a proposal to have the entire revenue structure expire in 1994 unless readopted.” Weicker used the sunset provision to garner support among unwilling Connecticut legislators as 1991’s budget battle stretched into the summer months.

In a televised speech on July 17, 1991, Weicker offered to end the tax in 1993, which would have made the income tax essentially a one-year deal to boost state revenue. According to the New York Times, Weicker “offered what he called a ‘fair compromise’ to automatically end the income tax in December 1993.”

Welcome to Connecticut.

Since then, Connecticut (where I live when I'm in the U.S., so I speak from first-hand experience) jumped from the flat-tax frying pan into the "progressive"-tax fire: a small state, once known as the Land of Steady Habits, now boasts an outsized debt of $35 billion, only recently ameliorated by a $4 billion surplus that will go (maybe) toward paying down the massive I.O.U.s the Nutmeg State has long-ago promised to fund pensions for... retired state employees and teachers. That's right, the current residents will get absolutely nothing, because nothing is too good for retirees who no longer contribute to either the economy or the commonweal. Pass an income tax, get disaster, whether at the federal or state level.

While Connecticut lawmakers sold the progressive tax as a way to provide middle-class tax relief and reduce property taxes, neither occurred. Instead, everyday taxpayers have been hit with recurring income and property tax hikes. The typical Connecticut household has seen its income tax rates increase more than 13 percent since 1999. At the same time, property tax burdens (property taxes as a share of income) have risen by more than 35 percent. Making matters even worse, the policy change cost the state’s economy more than $10 billion and 360,000 jobs, ultimately shrinking the labor force by an estimated 362,000 workers.

The Connecticut progressive income tax failed to fix state finances. In the wake of its progressive income tax experiment, Connecticut has continually raised taxes on the middle class, has a chronic outmigration problem, and finds itself in a financial situation that is just as dire as Illinois’. Connecticut has run state budget deficits in 12 of the past 15 years, and is holding more debt per capita than almost any other state.

Diabolically, the "progressive" Left has long pitched "progressive" income taxes as an act of enforced Christian charity, even though few of them are Christians, either of the professed or practicing variety. The income tax instead has proven to be a mechanism by which the wealthy—especially those benefitting from generational wealth, and thus have no "earned" income to report to the IRS—continue to thrive while the middle class, which has its money sucked out of its pocket via "withholding" (1943-), can never accumulate enough to move up. It's the famous Fox Butterfield Effect, in which an apparent contradiction is more properly understood as cause and effect. 

The truth is simple: when you have an income tax, you also get massive, snowballing debt. One of the first items on the DeSantis administration's order of business in January 2025 should be a move to repeal the 16th amendment as he cuts the size of government and abolishes any number of useless federal departments, reforms the franchise—and gives Americans back their economic freedom. 

Next up on the chopping block: the 17th Amendment.

Erin Go Bragh?

For reasons that are mysterious to those who know Irish history, the Irish think of themselves as an almost uniquely virtuous people. That self-appraisal first became evident when Irish nationalist history began presenting the nation as—in the words of skeptical revisionist historian Ruth Dudley Edwards—“the most oppressed people ever” or MOPE. Since the present age is one that worships the cult of victimhood, the most oppressed people ever have morphed easily into the most virtuous people ever. And because today’s dispensers of accolades of virtue are overwhelmingly woke progressives in politics and culture, the most virtuous people ever were soon encouraged to think of themselves as the most progressive people ever. (Those who would like a bracing corrective to this sentimentality with an edge of amnesia are advised to read the columns of Kevin Myers passim).

Currently essential requirements for internationally virtuous progressivism are a patriotic devotion to the European Union and a passionate attachment to all forms of Green politics. The Irish seem to score higher than anyone else by these tests. Indeed, this last week has seen the Irish government—composed as it is of Ireland’s two major “legacy” parties, Fine Gael and Fianna Fail—demonstrate a bipartisan conversion to the E.U.-backed international consensus that all governments should adopt a minimum corporate tax rate of fifteen percent.

Love it, hate it, tax it.

That conversion represents an astounding reversal of Ireland’s long-term economic strategy of attracting investment from multinational corporations with much lower rates—an economic strategy that has been largely successful and been declared irreversible by both parties many times. Yet it was abandoned with almost no prior debate and almost no subsequent controversy, as Irish Times columnist David Quinn has pointed out.

“Roma locuta, causa finita”—Rome has spoken, the debate is settled—used to be quite literally the motto of Irish governments in the bad old days of De Valera’s Catholic Republic. In the new modern progressive Ireland, however, an almost identically rigid rule—Brussels locuta, causa finita—applies to decisions of the European Union. And that includes decisions that the Brussels bureaucracy has taken but not yet formally managed to get into European law. Why bother when the subject nations prevent their own oppression “by a timely compliance”?

Superficially at least the same seems to be true of Green politics. In the run-up to the COP26 Climate Change Conference in Glasgow, few peoples are as pleased with their own deep-green commitments as those governed from Dublin. As political editor Pat Leahy reported in the Irish Times: Ireland’s Parliament “has passed legislation requiring the Government to reduce carbon emissions by 7 percent a year, leading to a reduction of 51 per cent by 2030.” That’s a massive commitment—one that would impose real sacrifices on ordinary Irish people—but a massive poll last year showed that the voters thought climate change posed a catastrophic threat to them and their way of life. A massive threat justifies making massive sacrifices to keep it at bay, right?

Well, as it turns out, no.

Mr. Leahy reports that according to a very recent Irish Times poll, when you break down massive sacrifice into specific burdens caused by policies the government may soon introduce, people become much less willing to bear the pains. Its general import can be seen in the following examples. Large majorities opposed higher taxes on energy and fuel (82 to 14 percent), making it more expensive to buy cars (72 to 23 percent), higher property taxes for homes that are not energy efficient (69 to 23 percent), reducing the size of the national cattle herd (60 to 25 percent), and running the risk of interruptions of electricity supply (81 to 13 percent.) Even higher taxes on air travel were firmly nixed (53 to 40 percent.) In fact the only proposal for greater sacrifice that got an actual majority (60 to 24 percent) was “allowing more land to be used for wind energy/turbines”—and it’s likely that this idea was supported by landowners who expect to be well-subsidized for their sacrifice and opposed mainly by wildlife enthusiasts. It doesn’t directly affect many other people.

Despoiling the Irish countryside in order to save it.

I don’t suppose that most of my readers will be too shocked by this. Most polls in other countries have similar results, confirming that people’s willingness to make painful financial sacrifices declines in proportion as the reality of the sacrifices increase. Why did the government not notice the same thing?

My guess is that they knew there’d be trouble—just not quite so much trouble—for an understandable reason. When all the major institutions of society (including both major parties and the media) support even a painful policy, controversy over it gets damped down. The voters aren’t alerted to what’s coming down the pike. That’s what happened when Ireland abandoned its lucrative low level of corporate taxation, and government spinmeisters may have calculated it would happen again with Green taxes and higher energy bills.

The difference between the two cases isn’t that abandoning Ireland’s low corporate tax strategy won’t hurt multinational investment, Ireland’s economic growth, and thus the voters’ prosperity. It will hurt all three, but it will do so gradually, moderately, and above all imperceptibly. Higher electricity and property taxes, electricity supply interruptions, and unaffordable vacation flights, on the other hand—well, people notice that kind of thing. And when they do, they conveniently forget that they had once expressed a noble willingness to endure pain to avert climate catastrophe. Instead they doubt that the catastrophe is as urgent as the need to keep their homes heated, their cars running, and their tax bills moderate.

In the next two weeks we’ll have the run-up to COP-26 in Glasgow. We may then see how much raw virtue democracy can take in any country. The Irish are unlikely to feel ashamed by comparisons.

Asking an Over-Burdened Capitalism to Save the World

My boss in my first job in journalism on the Daily Telegraph in London was a genius—a forgotten genius now, alas, because he was known in the trade as “the best editor the Daily Telegraph never had” and those kind of titles don’t pass down the generations. Colin Welch was both a clear-sighted anti-socialist with a sound grasp of economic theory and a wit perpetually fizzing with epigrams and ideas. In a debate in the magazine Encounter with Anthony Crosland, later Foreign Secretary but then Britain’s leading social democratic theoretician, Colin pointed out that the main intellectual flaw in moderate socialism was that it had far too much faith—indeed, unbounded faith—in capitalism.  

Whereas more orthodox leftists wanted to nationalize companies and plan their operations to make them more efficient and profitable, modern-minded social democrats like Crosland accepted that free market disciplines were simply better than state ownership at making companies efficient, profitable, and thus taxable.  

State-owned companies in Britain in the 1960s and 1970s had a distressing tendency to absorb more money in subsidies than they generated in profits and tax revenue. At one point it was estimated that the costs of subsidizing the UK’s coal, steel, and auto industries were equal to the total annual tax revenue from North Sea oil. That kind of thing discredited orthodox socialism and led to Margaret Thatcher’s program of mass privatization in the 1980s that was exported through the world. 

With the collapse of the Soviet Union in late 1991, socialists of all kind had to invent a new definition of socialism, and they came up with one like Crosland's that amounted in theory as well as practice to regulated capitalism.  

Nothing very dramatic there, you may think; capitalism has been regulated since the Victorians. But this kind of regulation went far beyond forbidding the emission of poisonous gases or punishing the man who watered the workers’ beer. Social democrats continued those regulations, of course; indeed, they generally made them heavier. But they also imposed novel regulations under two headings.  

The first were regulations designed to control every aspect of how industries would be allowed to operate—what forms of energy they could use, the composition of their workforce, the kind of finance they could raise, etc., etc.  The second regulations required companies to spend their own resources in achieving political objectives for which the government was reluctant to levy taxation.  I covered this use of regulations by governments more fully in my earlier piece Towards the Socialist Corporation.

As Welch had foreseen twenty years before, however, when socialists did this, they were taking for granted that companies would be able to factor in the costs of these impositions more or less indefinitely without collapsing or going bankrupt. They had infinite faith in capitalism and a belief that it would always deliver the goods for them. 

And now the bills are coming home to roost.   

In his consistently original, usually correct, and sometimes scary Wall Street advice column, "True Blue Will Never Stain," Martin Hutchinson looks at how the first set of regulations has obstructed the development of three large economic development projects—exactly the kind of project that are necessary if we are to keep our economy moving forward and delivering growth (even at today’s anemic rate of productivity.) 

He points out that the so-called Holy Roman Empire (i.e., broadly speaking, Germany before its unification in 1870) was about eighty years behind the Brits and the U.S. in developing its own industrial revolution because of two flaws: its feudal system of land tenure which was only one step up from serfdom, and its system of internal tariffs which obstructed trade and raised the prices of goods in all its subject principalities. There could be no creation of a large “single market” while these absurd economic institutions survived which they did until 1833, after which Germany began its successful catch-up. 

Charlemagne. King of the Franks and Emperor of the Romans.

Why did they survive so long in the light of the fact that they were holding the statelets of the Holy Roman Empire back in a fast-developing world? Hutchinson argues that they were so stitched into the Empire’s legal system and so into the thinking of its people that reforming them seemed inconceivable. Hutchinson then delivers his blow; that in the U.S. today a similar duo is holding back the American economy. It is the combination of aggressive environmentalists and over-powerful lawyers who between them exploit the opportunities that the government’s over-regulation gives to them to halt economic development and to win large legal settlements.  

Hutchinson gives three recent examples:  

  1. "A recent Supreme Court decision allowed the Atlantic Coast pipeline to run under the Appalachian Trail, a lawsuit that had held up the pipeline for years. However, this decision was essentially nullified when Dominion Energy, one of two companies that had been developing the $8 billion project, gave up and sold its remaining natural gas assets to Warren Buffett. Apparently, even with Supreme Court approval, the remaining environmental harassments and legal delays were sufficient to make the project uneconomic.
  2. "In a second case, the $4 billion Dakota Access oil pipeline, which has been opened with oil passing through it quietly for three years, was suddenly blocked by a Washington district court, and prevented from further operation, because of some alleged defect in the pipeline’s paperwork before it was opened. By this decision of a lower court 1,500 miles from the pipeline, the operation of a $4 billion asset will be prevented for an indefinite period, at least 13 months.
  3. "In the third case the Keystone XL pipeline, a major international project which was held up arbitrarily for the entire eight years of the Obama administration, and had slowly been working its way through the paperwork since 2017, was held up by the Supreme Court for yet another environmental review, thus dooming it if Joe Biden should win the November election. "

As Hutchinson concludes, not only are huge costs added to these projects by such delays but they are almost never completed on time, sometimes the delays become cancellations, and some projects are never started because the obstacles to them deter investment in the first place. 

There are three villains in this account, however, not just Hutchinson's two. They are the close-minded, single-issue environmentalists; the aggressive lawyers—as George Gilder has written, “Entrepreneurial lawyers are the cancer of capitalism” -- and the government that makes and sustains the regulations that enable the first two to play their obstructive roles.

What makes the obstructive role of governments so hard to understand is that they are enabling the failure of their signal policies. Both political parties are loudly committed to large infrastructure spending to revive the U.S. economy. But unless they reform the regulations that allow the other two to flourish, they will be spending billions of taxpayers’ money mainly on legal fees, cost over-runs, and abandoned projects.  

It seems so lunatic that it couldn’t possibly be true. Before you say that, however, consider this disturbing fact: governments around the world have steadfastly refused to publish the cost estimates of their promise to move towards carbon neutrality by 2050. Everybody knows that this policy (if it’s ever implemented) would be enormously expensive as well as reducing the standard of living of their populations. Still, it’s telling that governments are nervous about putting an actual figure on it -- as if the voters are so distracted by word inflation that they won't notice words such as horrendous or terrifying unless they're backed up by a statistic.  

So we can understand the reluctance of governments when we learn that one government has done so with results that would alarm a drunken sailor into fiscal sobriety. As the Danish economist and head of the Copenhagen Consensus, Bjorn Lomborg, points out in a New York Post oped, adapted from his new book, False Alarm: How Climate Change Panic Costs Us Trillions, Hurts the Poor, and Fails to Fix the Planet:

Only New Zealand has asked for an independent assessment of the cost of its climate policy. It will cost 16 percent of its GDP each and every year by 2050, making it more costly than the entire New Zealand public expenditures for education, health, environment, police, defense, social protection, etc. (My italics.) 

Lomborg comments reasonably “We need smarter solutions.” For that, however, we would need smarter governments and smarter politicians. What we have are people who think you can pile ever-larger burdens on capitalism, progressively starve it of real investment and opportunities, and then ask it to save the world.