IN the looking-glass world of the Conservative Party leadership election, Thatcher tribute act Liz Truss is promising simply to cut taxes. This is Thatcherism without its soul, a brainless recitation of old slogans without the slightest sign of understanding what they mean.

There is a tissue-thin argument favouring tax cuts. It begins by assuming government is ineffective, compared with people and private organisations, in enabling economic growth. In Truss’s world, as government cuts taxes, investment will increase, more people will come into the workforce and people will tend to complete more education and training. These changes in the private sector mean the rate of innovation will increase and we will see economic growth.

This is a quite different type of argument from the ones which appeared in my article last Saturday, where I was looking at how government policy affects the total demand for goods and services across the whole economy. This week, we are in the world of supply-side economics, beloved by political conservatives for most of the last 50 years.

In this approach, government really cannot do anything better than get out of the way and let the private sector increase the economy’s productive capacity. There are many ways of demonstrating that this cannot be true, but an important starting point might be the extent of uncertainty that we all face.

Take the claim that lower taxes mean people will tend to complete more education and training. That should be true in a world of complete certainty, in which doing well enough in a school leaving certificate would guarantee an apprenticeship for a skilled trade in large manufacturing works.

READ MORE: Rishi Sunak pledges to be 'firm' with Nicola Sturgeon on Scottish independence referendum

But we don’t live in that sort of world. Employers typically select the employees they need to recruit. For example, for the most sought-after positions for university graduates, there is a lengthy courtship process, involving complex application processes, and summer jobs – or internships as they invariably seem to be called now. Students who survive all of that will often enter their final year of study with a job offer.

For these employers, university attendance is a screening device, allowing them to concentrate on a manageable pool of applicants. Education need not be at all useful and may consist of nothing more than training in difficult – but ultimately pointless – tasks. (From time to time, we invite graduates to come back to university and talk with current students. None use the discipline-specific knowledge required to complete a degree.)

That uncertainty means people do not know how much they will earn after completing a degree. They cannot go to a bank and pledge to repay a tuition fee loan from their earnings. Banks are not willing to take such large gambles.

OF course, there is generally a difference between the individual uncertainty and the relatively certain future earnings of all graduates. For government, paying tuition fees is not a large risk and so in most countries students either pay no fees directly, or else have access to a government-backed loan fund.

The same applies – perhaps even more so – when it comes to business start-ups. About 70% of businesses fail in less than three years, For private-sector lenders, those are bad odds. They are reluctant to take on too much risk and so it is often very difficult for new businesses to attract support from the private sector. Governments inevitably become closely involved in providing support. Even if a business is well established, it will often struggle to obtain private funds for research and development. These processes are central to innovation. Research involves new discoveries. It is inherently uncertain. So is development, which will involve applying new processes or selling into new markets, or marketing new products.

Just as it is almost inevitable that government is involved in providing the finance for education, government needs to be involved in providing support for research and development, and innovation.

READ MORE: Rishi Sunak gives bizarre take on Boris Johnson's Scottish legacy

I could go on to talk about uncertainty, as explaining why we need the civil courts to providing binding judgments where there are disputes over liability in contracts, or the need for regulation of banks to ensure that they cannot accidentally undermine the economy in a bout of credit-financed asset inflation, as they did before 2008 (as regulators slept). But the idea that all an economy needs for growth is low tax is simplistic nonsense. It is unsurprising that it appeals to Truss.

This need for government to lead the financing of many projects explains why private-sector finance often plays a minor role in important areas of the economy. We can think of education, and research and development, as investments in the future. Even a new hospital building is a social investment.

To pay for such programmes, government will collect taxes. But the benefits of these projects will be experienced in the future, through economic growth. (Yes, even the hospital. Unpleasant though it is to put it this way, the health service keeps people alive – and dead people don’t work, spend money or pay taxes.)

The initial funding, then, will come from private finance. Pension funds require regular income to meet their obligations to scheme members, and this is generally best done by buying government bonds – debts issued by the government, to finance its investments. Government borrowing mobilises the private-sector saving necessary for society’s wellbeing now and in the future.