When Ronald Reagan arrived at the White House in 1981, promising to fix the rampant inflation and “economic dislocation” of the Carter era, he hired a radical budget director called David Stockman, says Daniel Finkelstein in The Times. Stockman was part of a burgeoning intellectual movement that argued the way to unleash growth in the economy was for the government to slash taxes and stop meddling. Freed from state interference, the theory went, businesses and individuals would naturally get prices to the right level, resulting in “stronger growth and greater prosperity”.
Hardcore evangelists claimed tax cuts would produce so much extra growth that they would “quickly pay for themselves”. To Stockman, this was obviously untrue. He saw that unless government spending was slashed at the same time, tax cuts would have to be paid for with a mountain of debt. But when he visited top Republicans in Reagan’s government asking them to reduce spending in their departments, they always found a reason to say no. Stockman eventually left office, “defeated by the massive deficit he had helped to create”. The Tory cabinet should remember Stockman’s story as they line up behind Liz Truss and her promised tax cuts. Funnily enough, not one has explained how their department will shrink public services to pay for them. Unless they do, the Tories have got no more than half a plan. It’ll take more than that to fix the economy.