TOKYO – As Liz Truss riffs on Margaret Thatcher and Ronald Reagan, a more recent failed experiment with supply-side economics leaps to relevance from the region: Japan’s so-called “Abenomics.”
Last week made for an intriguing split screen. On one half, moves by the new – and already embattled – UK prime minister to cut taxes for the nation’s top 1% fell flat in global markets. On the other, a state funeral for former Japanese prime minister Shinzo Abe, who had bet his legacy on a similar fiscal maneuver.
To be sure, Truss is backtracking on her tax cut plans to scrap the 45% income tax rate – for now, at least. But these zombie ideas never really die. Odds are, Team Truss – led by Finance Minister Kwasi Kwarteng – will try his ploy again presented in more palatable clothing. And soon.
The rise and fall of Abe’s legend as a great reformer sheds light on why gilt traders just aren’t having the Truss government’s reversion to Thatchernomics. The crux of the problem: just like Abe’s 2012-2020 tenure in Tokyo, Truss in London has a 1985 problem on her hands.