“Can the political leader choose a path different from that designated by common opinion? »

Lhe ambitious tax reform advocated by Liz Truss never saw the light of day. All the measures presented by the ephemeral British Prime Minister as essential to the recovery of the English economy were brutally canceled even before his forced resignation [jeudi 20 octobre].

His successor, Rishi Sunak, announced upon his appointment [le 25 octobre] a rise in taxes, a new tightening of the screw on immigration (despite the shortage of labour) and the unilateral abandonment of the agreements made with the European Union on the Northern Irish border.

So many measures that paradoxically won the favor of financial operators, since interest rates on British government bonds immediately fell and the course of the pound sterling rose. This situation raises awkward questions.

animal spirits

The first of these, formidable, is whether the markets are liberal. How could a tax reform that was supposed to unleash creative energies have been so unfavorably received by institutions whose foresight is supposed to exceed the capacity for judgment of any expert?

Great Britain is not facing a demand shock, but a supply shock, the characteristics of which are reminiscent of those of the oil shocks of the 1970s (rise in the cost of raw materials and stagflation). According to the analysis of the famous Laffer curve, the reduction in taxes, through the tax multiplier mechanism, should ultimately generate additional budgetary revenue thanks to the increase in the tax base made possible by the rebound in the economy.

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Why then are financial operators concerned about the “ex-ante financing” of expenditure? To solve this enigma, we could change our tune and consider that the markets, far from being omniscient, would be governed by these animal spirits of which the British economist John Maynard Keynes (1883-1946), the first, noted the importance in the formation of actors’ representations.

They would constitute a recording chamber for common opinion, itself contaminated by erroneous beliefs which would be self-reinforcing by effects of mimicry and cascade whose workings have been identified by experimental economists. This desire for conformity would then crystallize in a static, cautious mentality which would thus see in any new direction a potential risk that should be avoided.

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