By Nicole Goodkind, CNN Business
The British pound hit a record low against the dollar on Monday after UK Prime Minister Liz Truss, a fan of “trickle-down economics,” announced a sweeping spending and tax cut plan to rescue the British economy from recession on Friday.
What’s happening: Investors were taken aback by the new government’s choice to institute its largest tax cut in 50 years while boosting government spending and borrowing with inflation near 40-year highs. Citibank analysts called the decision a “huge, unfunded gamble for the UK economy.” Markets dropped precipitously on the news.
But Truss took a cue from former US President Ronald Reagan as she defended her actions. The government is “incentivizing businesses to invest, and we’re also helping ordinary people with their taxes,” she told CNN’s Jake Tapper last week, referencing Reagan’s trickle-down ideals.
So is she right? Let’s dust off our history books and see.
Interesting parallels: When Reagan arrived in Washington in 1981, inflation rates were nearly 10% and tight monetary policy had taken interest rates to over 19%. But much like Truss, Reagan argued that massive tax cuts and deregulation would stimulate productivity and he championed a sweeping tax cut that was passed by Congress that year.
Truss’ government points to that as proof that lowering taxes doesn’t necessarily drive up prices. Inflation fell and growth surged under Reagan, it says.
But…
