Tuesday, March 21, 2023

Is Economic Growth Possible in a Democracy?

By on October 22, 2022

What has happened to Liz Truss, the new prime minister of the United Kingdom, poses a question that is crucial to us in Puerto Rico, and throughout the world – whether democracy, after all, is the best system of government.

Is economic growth possible in a democracy?

Two weeks after becoming the new PM on September 23, 2022, Truss’ government announced a radical economic plan that ignited an economic and political explosion in the UK, sending shock waves throughout the world financial markets, and plunging the British sterling pound to its lowest level ever. “A major political blunder!” screamed the British press, claiming it to be the worst start of a new government in recent British history. After only two weeks, The Economist claimed, “Liz Truss’s new government may already be dead in the water.”

The focus of the criticism is the plan calling for massive tax cuts, including the rich, and massive additional emergency spending, mostly to offset the rise in energy costs. This was denounced as “epic budget-busting” that would plunge the economy into a greater debt crisis, and Truss was forced to quickly take back parts of the plan. After only 45 days in office, she was forced to resign. However, there is something deeper going on here.

Truss had said repeatedly that she was running for office with a priority – revive the UK’s economic growth. Beyond all the criticism, the purpose of her plan, as The Economist reported, “was meant to usher in a new era of economic growth.” I believe what is most important in all this is not the reaction of the experts, the economists and investors, but the political reaction by the British people.

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