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Melissa Harris-Perry: Welcome back to The Takeaway. I'm Melissa Harris-Perry. On Thursday, Liz Truss resigned as prime minister of Great Britain, making hers the shortest tenure in UK history. It came just shy of a month after her Conservative Party's mini-budget proposed a massive tax cut even as inflation and the cost of living skyrocketed. The value of the British Pound plummeted to record lows. Banks pulled mortgage deals from the market and the Bank of England intervened by temporarily buying up government bonds. Truss was forced to reverse course and then to step down. Let's get some tea with Rosie Collington, political economist and co-author of the forthcoming book, The Big Con: How the Consulting Industry Weakens Our Business, Infantilizes Our Government, and Warps Our Economies. Rosie, thanks for being here.

Rosie Collington: Thank you very much for having me.

Melissa Harris-Perry: What exactly is Truss-nomics?

Rosie Collington: Liz Truss came to power as prime minister of the Conservative Party through a format that we can probably get into within the Conservative Party. There are a number of ways through which new leaders are elected without going to a general election or can be elected. Liz Truss came to power through one of these mechanisms. She has historically been on the right of the Conservative Party and has been long associated with a group of think tanks in the UK that are known as the Tufton Street Lobby. These are groups that have long-developed policies that seek to shrink the state, cut taxes, and bring private companies into the public realm.

They emerged during the reign of Margaret Thatcher who many of your listeners will be familiar with. Also closely associated with Reaganomics and this era of what's known as trickle-down economics. This idea that there should be tax cuts across the economy, but primarily they should be aimed at the highest income with this idea or this theory which doesn't actually have a basis in economics.

This is a theory that if you do that, then this wealth will eventually trickle-down because these people will spend their money in places that are good for the economy. We know that that doesn't actually happen, but that is the theory underpinning it. That's really what characterized the mini budget that Liz Truss introduced with her chancellor a few weeks ago.

Melissa Harris-Perry: As you describe this trickle-down Reaganomics, I'm thinking, "Yes, I'm familiar with that." [chuckles] Not only in Great Britain, but clearly, it's part of how US politicians continue to run here in this country 40 years later. Help me understand why financial institutions and markets reacted so strongly and negatively to the mere announcement of this plan back in September.

Rosie Collington: Yes. This was really interesting. Primarily they reacted because, like many countries around the world, the UK is currently experiencing an inflationary crisis that is, in the UK, driven by the increase in prices in energy. The UK is not super dependent on oil and gas exports from Russia but we are dependent on imports of energy, much more so than many other European countries. The mini-budget that was announced included £45 billion worth of unfunded tax cuts. The markets basically looked at this and these tax cuts, by the way, primarily targeted the biggest earnest in society. They were tax cuts based on income and corporate profits.

The markets looked at this and they thought, "There is no way that you are going to be able to fund these tax cuts." The UK is currently experiencing an inflationary crisis, therefore you are going to have to borrow a lot but you are not going to be able to grow the economy in order to be able to fund these tax cuts because this economic strategy doesn't make any sense. What happened then was the markets lurched and we immediately saw the yields on gilts that spiked the pound plunge by nearly 5%, and this trend that we've seen over the past or for many decades, but the rising mortgage rates accelerated. This then had a number of ramifications for other financial institutions in the UK as well.

Melissa Harris-Perry: You are walking me now through how these market indicators were clearly showing what was going to happen relative to this massive tax cut aimed at the uber-wealthy. Help me now understand the connection because clearly, we live in such a global context that UK instability also means instability for many of the rest of us in the world. Is that right?

Rosie Collington: Yes. It is to an extent, absolutely. The US, for example, is in many ways relatively isolated from what happens in the financial system or financial plumbing of the United Kingdom, but the US is of course experiencing its own inflation crisis. I think many of your listeners will probably be asking, could a UK-style meltdown happen in the US? The risk of financial crisis grows as financial banks around the world have sharply increased interest rates.

Many financial institutions in the US are also nervous because of how this crisis that we've seen in the UK has played out, for example, with UK private pension funds, which was not unexpected but had some echoes with the unexpectedness of the 2008 subprime mortgage implosion, which of course set off this cascade of unwanted facts. The financial system is incredibly complicated and it is very difficult to know exactly how one challenge, how one problem, how one rupture within it is going to affect other parts of the financial system. That's really what's worrying financial institutions in the US and around the world and of course many other people.

The bigger challenge will come if this does end up impacting the US, and the US has to further increase interest rates because of course pretty much the whole world holds huge amounts of dollars or assets that are dollarized. Countries in parts of Africa, Asia, and South America are currently experiencing inflation as well. Where I'm currently based in in Santiago in Chile for my current research project, we have inflation of 12%. Many countries are seeing much higher than that.

Fed interest rate increases are already increasing the cost of borrowing for many countries around the world. Certainly, if the US does continue on the trajectory that it's now or if it gets worse, then this is going to be a problem for the rest of the world. I will say President Biden actually came out criticizing Truss-nomics, [chuckles] the policy platform, which was very unusual for a US president to do actually, the economic policy platform of the United Kingdom. I think we can be safely assured that the trickle-down economics in this ideology, this unfounded economics ideology that has characterized this moment in British politics is unlikely to take root in the US as well.

Melissa Harris-Perry: I got to say, Rosie, I cannot fathom a circumstance in which Americans would be appalled at the level of removing a leader who cut taxes on anybody really. Tax cuts is a bit like saying, "I've brought you roses, candy, and a puppy even when we know the economic effects." I do wonder about the political discourse around it.

Rosie Collington: I think you are absolutely right. I'll talk firstly about what this means in terms of the bigger debate in the UK at the moment that we're having around what these policies mean for the distribution of resources that we have in society, which I think is really important. Just because a government introduces tax cuts that affect everyone-- These ones did mean that everyone would see a reduction of the amount of tax that they pay on their income, for example. Just because the tax cuts affects everyone does not mean that everyone is going to be better off in the same way in the end.

If the value of your money decreases while you are seeing a tax cut, then in the end you will have less money, especially when at the higher end of income rates people will see the value of their money increases. It's not just about tax cuts. I think the broader conversation becomes what these policies mean for the distribution of resources in society and how much your money is worth relative to other people's money in society, which at the end of the day is all that matters.

Melissa Harris-Perry: Rosie, I so appreciate the clarity with which you made that economic argument. I wonder if what's happened with Truss is about that economic argument or if it's about leadership. In other words, I wonder if the lessons learned might shift if in fact there was simply someone better at selling this plan, a better politician.

Rosie Collington: I think one of the challenges that Liz Truss faced in trying to pursue this completely unfounded economic policy was also that she was delivering it as a politician who came to power by the votes of just 80,000 people. It was 0.1% of the population that voted for her. It was only members of the Conservative Party that were allowed to vote for her.

Many people were looking at what she was offering, seeing that because many people were having this conversation, thankfully, in the media and in other places about what these tax policies actually mean for the distribution of resources in society and how actually many people would be worse off, and that it was relying on this idea of trickle-down economics. Then also we had the market reaction. Many people were looking at this and then also thinking, "Hang on a second, I didn't even vote for this prime minister who was introducing these economic policies." They realized that it was totally undemocratic.

I don't necessarily think it was the leadership in terms of her character or her as a person per se, but actually just the fact that she came to power with no democratic mandate and she tried to introduce something that would make most people worse off with no democratic mandate. I think people weren't standing for that. The opinion polls in the UK have massively swung against the Conservative Party now in favor of the main opposition party we have, the Labor Party. I think that really says a lot about the problems with trying to govern, trying to introduce these policies in a way that actually is completely undemocratic.

Melissa Harris-Perry: Rosie Collington is political economist with the University College London's Institute for Innovation and Public Purpose, and co-author of the forthcoming book, The Big Con. Rosie, thank you so much for joining us on The Takeaway.

Rosie Collington: Thank you very much.

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