What the UK has shown us in recent days is that you cannot draw on credit lines indefinitely.
Let’s imagine. You are struggling to repay your mortgage loan. You go to see your banker and he says to you: “No problem. Take out a new loan with us, part of it will be used to repay your old loan, the other will be placed in our mutual funds, and the return on this new investment will drive you business!”. You imagine? We neither.
Let’s imagine. You are struggling to repay your mortgage loan. You go to see your banker and he says to you: “No problem. Take out a new loan with us, part of it will be used to repay your old loan, the other will be placed in our mutual funds, and the return on this new investment will drive you business!”. You imagine? We neither. Yet, in the face of the challenges looming in the face of Britain’s faltering economy, the mini-budget announced last week by new Prime Minister Liz Truss was just that: a fresh slate. Alongside subsidies that could amount to 150 billion pounds in order to lighten the weight of the energy bill, Liz Truss and her Chancellor of the Exchequer Kwasi Kwarteng had decided to grant 45 billion pounds in tax gifts, targeting poorer (but not the middle class), business and wealthy (very well-to-do households earning over £150,000 a year were to benefit from the removal of the top marginal tax rate). This expenditure was supposed to be reimbursed on a better future, an economy performing well again, walking or rather running towards a bright future. At this level, it is no longer an economic policy but an act of faith. But what is remarkable is that it no longer works. Labor, Liberals, but also a good number of Conservatives, business leaders, trade unionists, the International Monetary Fund and rating agencies: all have harshly reminded the British government that they do not believe in the multiplication of the loaves. They know that a tax break granted today will inevitably be paid for tomorrow. Britons of all classes are no longer willing to make sacrifices in exchange for a vague promise of one day entering a hypothetical paradise of double-digit hyper-growth. Because we are in the real world. And in this world, there is no paradise. Not even a free lunch. And there’s no point in having more dessert when you can’t afford the dish of the day. This does not mean that a boost from the state is not necessary during a pandemic or a major financial crisis. But it can only take place within a limited framework and in a very specific context, in which we are sure that these expenditures will have made it possible to avoid a general collapse. And when resources are limited, they should be directed to those who need them most. Not towards taxpayers earning over £150,000. Let’s not make fun of the British too quickly. We also see the bills coming from this side of the Channel. A bill for once too cheap energy, too cheap money, too cheap peace. But money is not cheap, and the rise in interest rates is starting to hurt households, pension funds, Credit Suisse… The rebound in energy prices is forcing us to invest massively, very quickly, in a new low-carbon system, but also to accelerate the amortization of fossil assets. And the sound of war drums will force us to spend money for our security that we would have seen going elsewhere, in more productive spending. All of this will have to be paid for. By us, taxpayers, consumers, entrepreneurs. What the UK has shown us in recent days is that you can’t draw on credit lines forever or keep the money printing press going. There is no more free lunch. In fact, there never was.