Markets are treating the UK as if it's a developing economy after the government's plan for tax cuts deepened the risk of 'policy disaster,' top economist Paul Krugman says

Krugman said that markets are now treating the UK as if it's a developing economy, a sign that confidence has plummeted.

The top economist pointed to the turmoil last week when the pound plunged after new Prime Minister Liz Truss announced she would be implementing tax cuts.

Krugman wrote for the New York Times that British markets aren't acting like advanced countries.

The plan would require a lot of borrowing. He noted that advanced countries in a budget deficit usually see the value of their currency rise as investors expect their central banks to raise rates.

Krugman said that Britain's markets are like those of a developing country, in which investors tend to see budget deficits as a sign of irresponsibility.

The tax cuts are part of Britain's plan to grow. The Bank of England is likely to hike interest rates more aggressively because investors fear the cuts will increase the government debt and fuel inflation.

Krugman said that cutting taxes in the hopes of boosting economic growth is a zombie idea and should be dead. The US economy grew during the Clinton administration.

Despite all the evidence to the contrary, officials insisted that the tax cuts would benefit the British economy. I don't think their assurances are true. Financial markets don't do that.

The chaos in Britain's markets could be an overreaction, but it is a testament to the "crisis of confidence" that has set off overseas, which could be an indicator for the British economy in the near-future.

He said that tax cuts for the rich are the answer to what ails us.