An interesting article making some good points about the death of democracy, although Thomas’s pink slip is showing.
Osborne and Hammond gave us a decade of rising spending and rising debt. That’s not my definition of austerity.
It’s not immoral to cut taxes, especially as Kwarteng’s mini-Budget cut taxes for everyone, not simply the rich. (It is, possibly, immoral to subsidise everyone’s energy bills, whether they need help or not. I’m getting an enhanced £500 Winter Fuel Payment plus £400 support in monthly instalments, neither of which pieces of financial profligacy were instigated by Kwarteng and Truss.)
And if only 19% of the electorate can see the madness in putting up taxes on small and medium sized businesses at the start of a recession we really are doomed.
Indeed, our only hope for freedom is enabling the small and medium sized businesses to counter the multi billion pound conglomerates that at present rule the roost. Only the much derided middle classes can save us and they should get all the help they can.
Marz Barr
1 year ago
Along my lines of thinking but I think you underestimate the support for Trussenomics by the Conservative Members. Conservatism is very much a taboo subject so you won’t hear the truth from the average Conservative and the media using Yougov stats is as evidence of the public opinion is taking the over 40s majority left’s view.
The fact that her economic policies is well known should not have resulted in this ‘shock, horror’, ‘total panic’ situation. Everyone was blaming the ‘way’ they delivered their budget, but all those institutions markets, BOE etc, would have known exactly what the will of the democratic process was.
At least we come to the same conclusion – Democracy is dead. Politicians do not serve the people and the will of the people does not matter anymore. We see it locally where we have no say in how much sewerage gets pumped into our rivers or how much local housing we get without doctors or schools. It started dying in the pandemic when unelected groups like SAGE made decisions on how old people should die, and how children should be constrained – it was being said that we have taken liberal democracy for granted and we will end up having to fight for it. And here we are.
Such a shame Kwasi and Liz did not have the Boris gumption to weather the storm.
There are enough who care about democracy out here in the ‘forgotten’ public sphere – time to create a new party and send the centrists to the lost land of Lib Dems.
Quite so. Would Trussenomics have worked? Maybe yes, maybe no, but we will never know. The Blob, the Swamp, Davos Man, and their media supporters didn’t want the risk of changes and so condemned us to the same old same old policies that have achieved an unremarkable mediocrity… and perhaps which are unsustainable in the longer term.
That’s my feeling. We’ll never know what might have come out of. And we never will because it won’t be allowed to happen. Consequently things will stay the same, for everyone.
Yes those forces fought hard to defend and preserve what is an unsustainable toxic status quo. But even if they defeated the careless Truss & KK, they cannot withstand or prevent an impending crash which will damage them and us all. They have all gorged and enriched themselves in a zero interest rate zero inflation fantasy land. But the demon Inflation is out and free now and will shatter this 15 year Orthodoxy, harming the Markets, the Blob and the greedy propertocracy. The author is totally right that a Labour Govt will never have the policies or talent to govern. It only knows how to spend and bow and divide and will collapse when properly scrutinized.
When financial markets control government action vs. the other way around, and when a “tax-cutting free market agenda” is thought of as “irresponsible”, the world is upside down.
I look forward to the Government sending China a £400 Billion bill for their lab released virus (now generally accepted by scientific scrutiny) and to the rogue Putin with the ongoing £Billions we are spending in the Ukraine war. Basically two autocratic regimes have suddenly made the UK vulnerable. Coming soon the Chinese Property crisis and Chip wars between China and the US. Hardly a crisis created by the Conservative Party.
Rob Britton
1 year ago
Truss’s defenestration was an EU-style technocratic takeover similar to that which had taken place in Italy. So comparing Hunt to Mario Draghi is highly appropriate.
Britain has left the EU. Stop talking about the EU. It makes you sound like a demented Brexiter.
Nell Clover
1 year ago
Markets don’t speak, markets echo what their traders say and do. Market prices are the average of the trades right now. Traders are not honest, they are either hustling to sell because they think its overvalued at that price or hustling to buy because they think its undervalued at that price. Buyers talk down the seller’s price to less than the buyer thinks its worth. Sellers talk up the buyer’s price to more then the seller thinks its worth. Those who want to buy may first try to sell short to depress the price. Those who want to sell may first try to buy short to inflate the price. Those who want to hold long can be forced to sell to buyers by buyers selling short. And those that do hold and don’t sell don’t get their thoughts on price computed into the market price at all.
So then, at any given time, the market price for a thing is simply an aggregate of false pretences. The market price is an average of price deceit. The market price cannot be a truth on value until the thing being traded is consumed and stops being traded. Indeed, when economists measure economic output they tacitly acknowledge this: we measure economic value at the point of consumption.
If real price discovery is only made when final consumption occurs, this means financial instruments can be issued and traded for years, decades, before an inevitable denouement with reality is reached. Even the leakiest of boats will float out of the dry dock so inevitably speculation launches a flotilla of leaky investments that only sink to the bottom when the next big financial storm comes despite them being unseaworthy when they were launched. That this happens repeatedly, almost every 7 years, tells us markets aren’t very good guides to the future value of things. That most of the top 100 companies 30 years ago are now gone confirms this. This should be obvious because market prices are literally the aggregate of what no one thinks things are worth.
Politicians, or indeed anyone, reliant on market prices as guides to the future should give me a call. I’ve got some very good investments they should buy.
Aside from the fact that central banks can influence bond prices on secondary market (through QE), there’s absolutely no technical reason why the price of bonds in secondary markets should influence the cost of borrowing. It’s just an institutional arrangement that gives undue power to private banks.
This is true. The point of a market is that it is supposed to be more efficient in allocating resources in the medium to long run. Central banks using QE etc have gamed this system, now the elite are making all the decisions. Is this good or bad? Are the elite really better than the market at this?
There is only one time a non-indexed gilt’s value affects the government: when it is auctioned by the DMO into existence. That is the point of consumption.
The secondary market indicates the price that will be paid for fresh gilts at the next auction but it does not change the coupon rate – and thus the interest paid – of those gilts issued.
Gilts are one of the most distorted markets in the world by one of the processes I mentioned above. The BoE is owned by the UK. The UK is a heavy seller of gilts. The BoE is buying gilts short in the secondary market to push up the price paid in the auction. A higher auction bid price reduces the relative value of the coupon rate, and so reduces the interest rate paid on the actual sum the gilt was sold for. This makes a very profitable business for those banks that can buy at gilt auctions. Except the BoE is not really buying gilts short. After 15 years of buying gilts short, it hasn’t sold a single one back into the market.
Add into the mix regulatory rules forcing certain types of institutions to hold gilts and similar instruments and accordingly, for 15 years the price of gilts has been a deceit. It is no coincidence that the BoE has been trailing plans to begin selling its “short” holdings of gilts in late 2022 and so this Autumn has seen gilt prices fall. Gilt prices are falling to where they would have been if the seller hadn’t been buying short for the last 15 years.
To understand why your argument doesn’t work you have to consider – as Marx failed to do – what happens when, after great investment, labour and expense, you launch a product that no-one wants. What then, is the ‘value’ of that product?
This sounds like quantum mechanics as applied to finance. Collapsing wave functions all over the place. Have we a new field for research? I’m sure someone could get a grant off of some institution to have a bash at it.
do you mean traders as in prop traders? or sales traders? at investment banks? or institutions? or hedge funds? or life insurers and pension AMs?.. all have different and conflicting interests… do your research!
Ian Barton
1 year ago
Any hint of a risk to the stability of the global debt Ponzi will be quickly punished by the established institutions. The nature of the Truss/Kwarteng announcements spooked these groups. The next financial crisis is just around the corner, but it remains to be seen who will place the triggering straw on the camels back.
My money is on China. Property crash and Biden’s chip war with China. It seems also that Xi has taken some advice from the Labour party and is taxing the Rich in his Country.
Brett H
1 year ago
So, if the government doesn’t come to heel for the markets that government will be destabilised. Then what’s needed is a leader who will stare them down. But the markets would be happy to see the country plunge into financial crisis in a standoff. What did Truss and Kwarteng have to lose by sticking it out? There was no threat of an election being called, was there? Why did they cave?
Good chance she came to see she wasn’t up for the job as per the recent Yuan Yi Zhu article. Perhaps her sense of honour / concern for her country and party outweighed her desire to push through extreme free market policy.
Members made the wrong choice? The fault lies upstream with MP’s, they present the final candidates to the membership. They weeded out many decent candidates for the promise of a ministerial car and a portfolio.
They chose her because they are tory members predominately over 70, wealthy, right wing and thought Truss was Thatcher reborn! Plus of course they had nothing to lose…
Probably they were told the £ would become the new Argentinian peso. Although I agreed with her policies she/he didn’t put them up for scrutiny with the OBR. It seems much easier to borrow money than look for spending cuts. As an aside I would question how this Country can afford to keep illegal immigrants in Hotels supported by Labour who then complain about the deprivation of the working class. What is it… £1.5 Billion and rising while homegrowns linger in shop doors at night. This crisis will go on forever unless they declare a state of Emergency and put the left wing activist lawyers out of Business.
Hugh Bryant
1 year ago
Let’s face it: we’re in trouble because no politician has the cojones to tell the middle class that we have to stop living off the state and start paying back some of the trillions of unearned property wealth that we’ve accumulated as a result of the vote-buying policies of the Blairites in both parties.
It’s time to stop balancing the books on the backs of the grafters. Will Starmer do that? Of course he won’t.
Of course he won’t but the only way to realise the £7.6 trillion bubble housing market is for individuals to sell up, be taxed at a penurious rate and be rehoused in more humble accommodation, which we don’t have. Welcome to 1917 Russia or is it 1865. Think I’ll keep the Blairites.
Aaron James
1 year ago
Sunak and Hunt created this ‘Everything Bubble’ and Inflation.
These are the two Foxes you are going to put in charge of the hen house.
These two, with Boris; the worst PM in British History – destroyed the country by their insane covid response, and then WWIII. They made people stay home over 200 days, doing nothing, wile paying them. Then everything else – insane.
Truss tried to use Thatcher methods when the times have changed. In 2009 Gordon Brown began QE and zero interest policy – and then 12 years of Tories expanded the insanity – and then the covid response and Ukraine war!
In a proper GB the lot of them would be taken through Traitors Gate to Tyburn, and given the Justice they deserve – but no, instead the snakes will be given power and unlimited ability to borrow money (which much will end up in their friends pockets – and so later, in theirs.)
Heretics to Tyburn, traitors to the Tower is the traditional arrangement.
Chris Hume
1 year ago
only 12% of voters supported scrapping the cap on bankers’ bonuses; only 11% supported abolishing the top rate of income tax for high-earners; and only 19% thought it was a good idea to cancel the planned increase in the corporation tax
This is hardly surprising, the public is always in favour of higher taxes for other people.
I don’t believe those figures anyway – it’s easy enough to get polls to say anything you want by the way you phrase the question.
The policies were never given room to prove themselves – taken down by the bolb inside the tory party as much as the media – the pound did not fall against the dollar because of bankers bonuses but because they funding was not in evidence.
Liz made a tragic mistake by not preparing the groundwork properly and unfortunately as she was not the chosen one by the politicians she didn’t get the backing she needed
So here we go back to the team that crashed the economy in the first place – bizzare – Liz didn’t spend billions on covid lockdowns & bailouts which is at the root of the problem – Liz did not create the black hole in the budget – Sunak did.
When I saw the tax cuts, my immediate expectation was that the Bank of England would raise interest rates in response, as the only way I could rationalise the plan – a low tax, high interest country would bring in foreign money, particularly if other countries were raising taxes or closing industries.
That the BoE didn’t immediately raise interest rates was a surprise. But then I’m not steeped in all the other economic impacts, and the BoE are the experts. However, the subsequent pension fund bond panic makes it clear that the current financial markets are extremely fragile at the moment. Pension funds should be run to minimise financial risk – that the impact of a tax cut could push them over the edge is extremely worrying. In inflationary times, governments printing more and more money just increases the size of the bubble.
The problem was the BoE didn’t raise interest rates as much as the markets expected before the mini-budget so the implosion was already fully primed.
The ‘crisis’ in the Pensions & Insurance sector was entirely self made – the PRA is supposed to spot these systemic risks and prevent them – and who was in charge there until recently Oh.. Mr Bailey I believe …. there’s another safe pair of hands at work 🙂
Mike F
1 year ago
Asking the public whether they support scrapping the cap on bankers’ bonuses, or raising corporation tax, is a bit like asking me my views on Nuclear Physics. I simply don’t understand it. So it’s not that the public are left-leaning economically, it’s simply that they don’t understand the arguments for and against these things.
Whis is probably why populism has a bad rep; a government can either try to do what the evidence indicates is correct, or they can try to do what the man on the street thinks is correct, based on his ignorance.
Nick Wright
1 year ago
Great article, even though there is inconsistency around this fundamental point:
‘Ultimately, the government wasn’t taken down by “the markets”, but by its own weakness, since neither Truss nor Kwarteng possessed the intellectual and political tools, nor the popular support, to ignore the hysteria and stick to their guns.’
Anyone and everyone could see that Truss was for turning on any and every issue… as long as she believed it to be good for her career. All it took was some sustained pressure – if it wasn’t on the economy, it would have been something else – and she’d throw any idea out of the window or any colleague under a bus. Gladly, it didn’t take long for her to be found out; sadly, it’s been to the detriment of our democratic system.
I’d take issue with Kwasi’s lack of intellectual tools. However he patently lacked the political tools; perhaps he’ll demonstrate a little more nous if he gets another chance.
James Kirk
1 year ago
“Be quiet, Joe Public!”
“But…”
“Just sit tight, we know what we’re doing…”
“How come we are where we are today then?”
Douglas H
1 year ago
Good article, thanks. I share the concern that Truss was removed not for the risky and immoral policies of Reaganomics, for which she should have been removed by the electorate, but for challenging the elite consensus.
Frank McCusker
1 year ago
Wider issue is that we have too many politicians who have never had to adjust their silly ideas to reality.
Go back a few decades, and you had politicians whose viewpoints were tempered with hard-won experience. Whether gained through being in business on your own account, or by being a trade union leader. You knew how the world worked and the enormous gap between theory and practice.
MPs are not like that any more. Instead of real-world experience, MPs chair nerdy think-tanks. Truss is a think-tank junkie. Kwarteng was an academic. Johnson was a journalist. Everyone is skewed towards theories that they have not tested. And, obviously, most voters are armchair theorists. And too many people have MBAs and PPE degrees, both of which are designed to give you the appearance of knowledge, rather than the substance of it.
Always obvious to me how little most MPs and voters know about the rule of law, for instance.
So you have a perfect storm of virginal theorists, with whimsical notions about how things should work.
And these noobs by and large have taken over.
Sunak is an exception. He has been in business and knows how money works.
I’d propose 2 eligibility hurdles for public office:
– any association with any think tank (speaking at, membership of) should disbar you from public office; and
– nobody should be allowed to run for public office until they have had 10 years of work experience in the real world – excluding all jobs associated with politics (MP’s assistant, lobbying, PR, journalism)
Five major plus points over and above Rishis talent, experience, intellect and financial knowledge:
• He does not need the job or the emolument.
• I suspect that he has very little interest in the ” racist” obsessives.
• Ditto even more so LGBT
• … and eco sandaloid zero zombies.
• He will strengthen ties with India, who should be our no 1 ally, not least in the war against Islamic terrorism.
• Ditto Israel.
St Paul probably would have dedicated more of his writings to the love of money if he genuinely believed it was the root of all evil. Taking that literal translation as the absolute meaning sounds daft, so naturally, it’s a nice interpretation for those of us who take pleasure in disregarding St Paul or Christian writings more generally.
“For the love of money is the route of all kinds of evil” is the translation used in non-KJV versions (big fan of KJV mostly). That’s obviously a reasonable claim so not as much use for Paul bashing.
Agreed, the KJV is perhaps slightly unkind, but Paul, given his background is an irresistible target, and at least he had a satisfactory ending, as he so richly deserved.
Last edited 1 year ago by CHARLES STANHOPE
Su Mac
1 year ago
Seems to me that the complexity of economics, modern financial instruments and the late-stage-empire survivalism we are living with will allow commentators to vigorously argue the case from every corner.
But every time someone says *there is no technical reason* why excessive government debt or MMT or collapsed secondary bond markets should negatively affect a country’s economy I think “Yeah, but in reality it always does!”.
Better to trust historical track record than economic theory. The majority of Weimar era economists swore blind and probably believed there was no link at all between adding 1 billiard marks to the money circulation in a week and the x6 inflation in the cost of 1 egg. https://www.goodreads.com/book/show/8567383-when-money-dies
Rasmus Fogh
1 year ago
The problem is not “the primacy of politics over technocracy.” The problem, with Brexit as with Trussonomcs, is the primacy of politics over reality. Politicians pretend that they can deliver any nice thing they happen to dream up – as in ‘having your cake and eating it’. Voters lap it up, and vote for fantasies. And both politicians and voters become horribly affronted and moan about nasty technocrats when it turns out that no matter how strong their will or how entertaining their antics, reality still gets the last word.
The only unreal thing about the mini-Budget was the two year blank cheque energy bills support. That’s what the bond markets took fright at. But, of course, that was very popular with the public so the blob had to blame the turbulence on the tax cuts. Which conveniently aligned with their anti-Tory, tax cuts for the rich agenda.
Oh come on.
Truss’s tenure was hardly catastrophic.
Her biggest failure was her blind, unquestioning
support for Biden’s proxy war against Russia.
Anne Torr
1 year ago
So ‘only 12% of voters supported scrapping the cap on bankers’ bonuses; only 11% supported abolishing the top rate of income tax for high-earners; and only 19% thought it was a good idea to cancel the planned increase in the corporation tax.’ Is this the way to go in setting economic policy on the basis of popularity. Seriously?
Indeed, it is utterly inane.
If a supposed ‘conservative’ govt can’t reduce the top rate to where it was for 12 years under last Labour govt, what is the point of the Tories? If they put corporation tax UP during a recession & thereby guarantee many struggling businesses go bust, what is the point of the Tories?
I am now looking at Reform UK’s policies because if the choice is voting for Blue Blairites or Red Blairites, I’m going to find someone else to vote for.
A generation ago ministers were focussed on the next election, up to 5 years ahead. Today they are focussed on the next opinion poll. Higher taxes on companies, the rich, and the self employed, will always play well in the short run. But if they damage the economy the resulting economic malaise is unlikely to benefit the ministers who imposed them.
Jeff Carr
1 year ago
On this occasion I agree with Thomas Fazi.
All the media and technocrat focus was on the 45% and Bonus tax changes. These were minor costs compared to the Energy Support package but afforded an envy narrative to destroy Truss’s attempt to challenge the established orthodoxy of the technocracy.
In fairness to the IMF they did indicate that Truss’s policy would lead to higher growth but only after joining in the denigration of the mini-budget.
Now we have Sunak whose career profile matches perfectly the rest of the Technocrats. (PPE Oxford, MBA Stamford, Private Equity Finance)
Today Huw Pill from the Bank of England (CV: PPE Oxford, Harvard and ECB) speaking at ONS disparaged the mini-budget and praised the dialogue between ONS and BoE wistfully reflecting on the better relationship with Treasury before Kwarteng attempted a reset.
In business it is much easier to focus on the internal costs and efficiencies. This is the Accountants approach to bottom line improvement. What is much more difficult is developing new products that the market wants and driving up revenue. This entails more risk and ultimately greater reward. It requires entrepreneurs not technocrats. This is what creates international champions like JCB and the Rolls Royce of RB211 fame. Does anybody today remember GEC, FKI?
Unless we have leaders who support and develop international success we are destined for economic stagnation and decline. A large public sector technocracy is a recipe for disaster.
James Jenkin
1 year ago
Interesting, but maybe consider big market players don’t want a free market at all, they want regulation and subsidies
Perry de Havilland
1 year ago
This may come as a shock, but whilst “markets” can unmake a Prime Minister, they can’t elect one in a general election (well, not yet).
Hard to see how any small-c conservative would vote for a Blue Blairite like Sunak & over the last few days, you can practically hear the sound of Tory Party membership cards being torn in half by people who actually voted for Liz Truss to lead the party.
The choice many now see is either you vote Tory in next GE & get a Blue Blairite, and if you don’t, you get a Red Blairite. So frankly who cares? Not matter who you vote for, you get a Blairite.
Last edited 1 year ago by Perry de Havilland
Tony Conrad
1 year ago
I don’t think the party will recover. Sunak is now thinking of a digital currency centralised by a government bank. This is what they have in China which means total control over the populace where you can be fined directly from your centralised account if you don’t tow their line or have a good carbon footprint etc. etc. Wouldn’t this be the beginning of a dictatorship?
B Emery
1 year ago
Such a great article. Favourite unherd writer.
In hindsight of tonight though re: liz truss phone hacking, russia accusing uk of nord stream and attack in crimea, potentially blowing up Russian black sea flag ship, wish I could be more eloquent but WTF.
Was she stitched up from the start? Or is this the real reason she had to step down? And it was all some weirdly orchestrated fiasco?
Mind blown, battening the hatches down right now.
Think you should get on this question right now Mr fazi, please, if you have time, I have to go back to work next week, would be much appreciated 🙂
Richard Calhoun
1 year ago
Interesting you have decided that people don’t want a small state … I think that assumption is deeply flawed.
Working people would vote for lower taxes and smaller govt., particularly if a programme to axe quango’s and so many other Govt Agencies.
ShrinkTheState gov.uk/government/org 23 Ministerial Depts 20 Non Ministerial Depts 418 Agencies & public bodies 109 High Profile Groups 16 Public Corporations 3 Devolved Administrations
The government would not be dictated by the markets, if 50 years of economic incompetence had not got us into £2.7 trillion of debt.
Joshua PV
1 year ago
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Barry Werner
1 year ago
Gobbledygook.
Adam Bartlett
1 year ago
Lots of quality points in the article, though I suspect market & technocrat power may not be quite the obstacle to an economically Left agenda that Mr Fazi seems to think. The reason is Labour politicians tend to have more operational competency than your typical Tory – albeit with the sad exception of electioneering. Let me talk a bit about John McDonnell, my local MP. When JC made him Shadow Chancellor, JM was such a sincere socialist he didn’t even have the cash for a good business jacket (word is he often gave away much of his MP’s salary to the struggling folk he met in his case work.) But he soon sorted himself out, and launched a city charm offensive. Almost every week he’d be having meetings with technocrats, bankers & other market players. So in contrast to Truss & Kwartengs’ little attempt, if Labour had won in 2017 or 2019, then the ground would have been prepped for radical economic policy with reduced risk of provoking a major market reaction. That wouldn’t have been as hard as some might think – my market knowledge is a little out of date now, but certainly around 2008 – 2010 almost all City economists were Keynesian (in a sensible sense, not the Truss distortion) & they’re probably still Keynesian now.
An interesting article making some good points about the death of democracy, although Thomas’s pink slip is showing.
Osborne and Hammond gave us a decade of rising spending and rising debt. That’s not my definition of austerity.
It’s not immoral to cut taxes, especially as Kwarteng’s mini-Budget cut taxes for everyone, not simply the rich. (It is, possibly, immoral to subsidise everyone’s energy bills, whether they need help or not. I’m getting an enhanced £500 Winter Fuel Payment plus £400 support in monthly instalments, neither of which pieces of financial profligacy were instigated by Kwarteng and Truss.)
And if only 19% of the electorate can see the madness in putting up taxes on small and medium sized businesses at the start of a recession we really are doomed.
Well stated.
Indeed, our only hope for freedom is enabling the small and medium sized businesses to counter the multi billion pound conglomerates that at present rule the roost. Only the much derided middle classes can save us and they should get all the help they can.
Along my lines of thinking but I think you underestimate the support for Trussenomics by the Conservative Members. Conservatism is very much a taboo subject so you won’t hear the truth from the average Conservative and the media using Yougov stats is as evidence of the public opinion is taking the over 40s majority left’s view.
The fact that her economic policies is well known should not have resulted in this ‘shock, horror’, ‘total panic’ situation. Everyone was blaming the ‘way’ they delivered their budget, but all those institutions markets, BOE etc, would have known exactly what the will of the democratic process was.
At least we come to the same conclusion – Democracy is dead. Politicians do not serve the people and the will of the people does not matter anymore. We see it locally where we have no say in how much sewerage gets pumped into our rivers or how much local housing we get without doctors or schools. It started dying in the pandemic when unelected groups like SAGE made decisions on how old people should die, and how children should be constrained – it was being said that we have taken liberal democracy for granted and we will end up having to fight for it. And here we are.
Such a shame Kwasi and Liz did not have the Boris gumption to weather the storm.
There are enough who care about democracy out here in the ‘forgotten’ public sphere – time to create a new party and send the centrists to the lost land of Lib Dems.
Quite so. Would Trussenomics have worked? Maybe yes, maybe no, but we will never know. The Blob, the Swamp, Davos Man, and their media supporters didn’t want the risk of changes and so condemned us to the same old same old policies that have achieved an unremarkable mediocrity… and perhaps which are unsustainable in the longer term.
That’s my feeling. We’ll never know what might have come out of. And we never will because it won’t be allowed to happen. Consequently things will stay the same, for everyone.
Yes those forces fought hard to defend and preserve what is an unsustainable toxic status quo. But even if they defeated the careless Truss & KK, they cannot withstand or prevent an impending crash which will damage them and us all. They have all gorged and enriched themselves in a zero interest rate zero inflation fantasy land. But the demon Inflation is out and free now and will shatter this 15 year Orthodoxy, harming the Markets, the Blob and the greedy propertocracy. The author is totally right that a Labour Govt will never have the policies or talent to govern. It only knows how to spend and bow and divide and will collapse when properly scrutinized.
When financial markets control government action vs. the other way around, and when a “tax-cutting free market agenda” is thought of as “irresponsible”, the world is upside down.
I look forward to the Government sending China a £400 Billion bill for their lab released virus (now generally accepted by scientific scrutiny) and to the rogue Putin with the ongoing £Billions we are spending in the Ukraine war. Basically two autocratic regimes have suddenly made the UK vulnerable. Coming soon the Chinese Property crisis and Chip wars between China and the US. Hardly a crisis created by the Conservative Party.
Truss’s defenestration was an EU-style technocratic takeover similar to that which had taken place in Italy. So comparing Hunt to Mario Draghi is highly appropriate.
Britain has left the EU. Stop talking about the EU. It makes you sound like a demented Brexiter.
Markets don’t speak, markets echo what their traders say and do. Market prices are the average of the trades right now. Traders are not honest, they are either hustling to sell because they think its overvalued at that price or hustling to buy because they think its undervalued at that price. Buyers talk down the seller’s price to less than the buyer thinks its worth. Sellers talk up the buyer’s price to more then the seller thinks its worth. Those who want to buy may first try to sell short to depress the price. Those who want to sell may first try to buy short to inflate the price. Those who want to hold long can be forced to sell to buyers by buyers selling short. And those that do hold and don’t sell don’t get their thoughts on price computed into the market price at all.
So then, at any given time, the market price for a thing is simply an aggregate of false pretences. The market price is an average of price deceit. The market price cannot be a truth on value until the thing being traded is consumed and stops being traded. Indeed, when economists measure economic output they tacitly acknowledge this: we measure economic value at the point of consumption.
If real price discovery is only made when final consumption occurs, this means financial instruments can be issued and traded for years, decades, before an inevitable denouement with reality is reached. Even the leakiest of boats will float out of the dry dock so inevitably speculation launches a flotilla of leaky investments that only sink to the bottom when the next big financial storm comes despite them being unseaworthy when they were launched. That this happens repeatedly, almost every 7 years, tells us markets aren’t very good guides to the future value of things. That most of the top 100 companies 30 years ago are now gone confirms this. This should be obvious because market prices are literally the aggregate of what no one thinks things are worth.
Politicians, or indeed anyone, reliant on market prices as guides to the future should give me a call. I’ve got some very good investments they should buy.
Bond prices in the secondary market have an immediate effect on the cost of government borrowing .
Aside from the fact that central banks can influence bond prices on secondary market (through QE), there’s absolutely no technical reason why the price of bonds in secondary markets should influence the cost of borrowing. It’s just an institutional arrangement that gives undue power to private banks.
Indeed, it’s possible Mr Willis’s experience is a little outdated. His point was much more true back in the late 20th century.
This is true. The point of a market is that it is supposed to be more efficient in allocating resources in the medium to long run. Central banks using QE etc have gamed this system, now the elite are making all the decisions. Is this good or bad? Are the elite really better than the market at this?
This comment, after some thought, is not even worth commenting on.
This mediums comment and knowledge on bond markets, is a bit like the Gilt, or indeed and fixed income market…
As The volume of comment goes up, the displayed knowledge plummets…
a new instrument could be used to measure the above BS uttered… the UCIO ” Unheard Crass Ignorance Oxometer”…
You could try your UCIO, but I think you’d find if you were anywhere near it, it wouldn’t stop going off.
There is only one time a non-indexed gilt’s value affects the government: when it is auctioned by the DMO into existence. That is the point of consumption.
The secondary market indicates the price that will be paid for fresh gilts at the next auction but it does not change the coupon rate – and thus the interest paid – of those gilts issued.
Gilts are one of the most distorted markets in the world by one of the processes I mentioned above. The BoE is owned by the UK. The UK is a heavy seller of gilts. The BoE is buying gilts short in the secondary market to push up the price paid in the auction. A higher auction bid price reduces the relative value of the coupon rate, and so reduces the interest rate paid on the actual sum the gilt was sold for. This makes a very profitable business for those banks that can buy at gilt auctions. Except the BoE is not really buying gilts short. After 15 years of buying gilts short, it hasn’t sold a single one back into the market.
Add into the mix regulatory rules forcing certain types of institutions to hold gilts and similar instruments and accordingly, for 15 years the price of gilts has been a deceit. It is no coincidence that the BoE has been trailing plans to begin selling its “short” holdings of gilts in late 2022 and so this Autumn has seen gilt prices fall. Gilt prices are falling to where they would have been if the seller hadn’t been buying short for the last 15 years.
To understand why your argument doesn’t work you have to consider – as Marx failed to do – what happens when, after great investment, labour and expense, you launch a product that no-one wants. What then, is the ‘value’ of that product?
I think it was the Sage of Omaha who said, “In the short term, markets are voting machines. In the long term they are weighing machines.”
and just look how insurance and reinsurance markets are blowing up Berkshire Hathaway? Just look at his billions of losses there?
This sounds like quantum mechanics as applied to finance. Collapsing wave functions all over the place. Have we a new field for research? I’m sure someone could get a grant off of some institution to have a bash at it.
do you mean traders as in prop traders? or sales traders? at investment banks? or institutions? or hedge funds? or life insurers and pension AMs?.. all have different and conflicting interests… do your research!
Any hint of a risk to the stability of the global debt Ponzi will be quickly punished by the established institutions. The nature of the Truss/Kwarteng announcements spooked these groups. The next financial crisis is just around the corner, but it remains to be seen who will place the triggering straw on the camels back.
Another conspiracy theorist – who knew that Britain, for so long a sensible country, had such a fine crop of these febrile chaps
My money is on China. Property crash and Biden’s chip war with China. It seems also that Xi has taken some advice from the Labour party and is taxing the Rich in his Country.
So, if the government doesn’t come to heel for the markets that government will be destabilised. Then what’s needed is a leader who will stare them down. But the markets would be happy to see the country plunge into financial crisis in a standoff. What did Truss and Kwarteng have to lose by sticking it out? There was no threat of an election being called, was there? Why did they cave?
Good chance she came to see she wasn’t up for the job as per the recent Yuan Yi Zhu article. Perhaps her sense of honour / concern for her country and party outweighed her desire to push through extreme free market policy.
When free market policies are considered extreme, what then?
Because her own party wouldn’t back her.
Then why did they chose her?
The members made the wrong choice. By 2.00 today we will know if the idiots get a second go at rejecting the MP’s preferred PM.
Members made the wrong choice? The fault lies upstream with MP’s, they present the final candidates to the membership. They weeded out many decent candidates for the promise of a ministerial car and a portfolio.
All the red marks, but no answer.
They chose her because they are tory members predominately over 70, wealthy, right wing and thought Truss was Thatcher reborn! Plus of course they had nothing to lose…
Probably they were told the £ would become the new Argentinian peso. Although I agreed with her policies she/he didn’t put them up for scrutiny with the OBR. It seems much easier to borrow money than look for spending cuts. As an aside I would question how this Country can afford to keep illegal immigrants in Hotels supported by Labour who then complain about the deprivation of the working class. What is it… £1.5 Billion and rising while homegrowns linger in shop doors at night. This crisis will go on forever unless they declare a state of Emergency and put the left wing activist lawyers out of Business.
Let’s face it: we’re in trouble because no politician has the cojones to tell the middle class that we have to stop living off the state and start paying back some of the trillions of unearned property wealth that we’ve accumulated as a result of the vote-buying policies of the Blairites in both parties.
It’s time to stop balancing the books on the backs of the grafters. Will Starmer do that? Of course he won’t.
Of course he won’t but the only way to realise the £7.6 trillion bubble housing market is for individuals to sell up, be taxed at a penurious rate and be rehoused in more humble accommodation, which we don’t have. Welcome to 1917 Russia or is it 1865. Think I’ll keep the Blairites.
Sunak and Hunt created this ‘Everything Bubble’ and Inflation.
These are the two Foxes you are going to put in charge of the hen house.
These two, with Boris; the worst PM in British History – destroyed the country by their insane covid response, and then WWIII. They made people stay home over 200 days, doing nothing, wile paying them. Then everything else – insane.
Truss tried to use Thatcher methods when the times have changed. In 2009 Gordon Brown began QE and zero interest policy – and then 12 years of Tories expanded the insanity – and then the covid response and Ukraine war!
In a proper GB the lot of them would be taken through Traitors Gate to Tyburn, and given the Justice they deserve – but no, instead the snakes will be given power and unlimited ability to borrow money (which much will end up in their friends pockets – and so later, in theirs.)
Heretics to Tyburn, traitors to the Tower is the traditional arrangement.
This is hardly surprising, the public is always in favour of higher taxes for other people.
Damned inconvenient democracy eh?
I don’t believe those figures anyway – it’s easy enough to get polls to say anything you want by the way you phrase the question.
The policies were never given room to prove themselves – taken down by the bolb inside the tory party as much as the media – the pound did not fall against the dollar because of bankers bonuses but because they funding was not in evidence.
Liz made a tragic mistake by not preparing the groundwork properly and unfortunately as she was not the chosen one by the politicians she didn’t get the backing she needed
So here we go back to the team that crashed the economy in the first place – bizzare – Liz didn’t spend billions on covid lockdowns & bailouts which is at the root of the problem – Liz did not create the black hole in the budget – Sunak did.
Well said.
When I saw the tax cuts, my immediate expectation was that the Bank of England would raise interest rates in response, as the only way I could rationalise the plan – a low tax, high interest country would bring in foreign money, particularly if other countries were raising taxes or closing industries.
That the BoE didn’t immediately raise interest rates was a surprise. But then I’m not steeped in all the other economic impacts, and the BoE are the experts. However, the subsequent pension fund bond panic makes it clear that the current financial markets are extremely fragile at the moment. Pension funds should be run to minimise financial risk – that the impact of a tax cut could push them over the edge is extremely worrying. In inflationary times, governments printing more and more money just increases the size of the bubble.
The problem was the BoE didn’t raise interest rates as much as the markets expected before the mini-budget so the implosion was already fully primed.
The ‘crisis’ in the Pensions & Insurance sector was entirely self made – the PRA is supposed to spot these systemic risks and prevent them – and who was in charge there until recently Oh.. Mr Bailey I believe …. there’s another safe pair of hands at work 🙂
Asking the public whether they support scrapping the cap on bankers’ bonuses, or raising corporation tax, is a bit like asking me my views on Nuclear Physics. I simply don’t understand it. So it’s not that the public are left-leaning economically, it’s simply that they don’t understand the arguments for and against these things.
Whis is probably why populism has a bad rep; a government can either try to do what the evidence indicates is correct, or they can try to do what the man on the street thinks is correct, based on his ignorance.
Great article, even though there is inconsistency around this fundamental point:
‘Ultimately, the government wasn’t taken down by “the markets”, but by its own weakness, since neither Truss nor Kwarteng possessed the intellectual and political tools, nor the popular support, to ignore the hysteria and stick to their guns.’
Anyone and everyone could see that Truss was for turning on any and every issue… as long as she believed it to be good for her career. All it took was some sustained pressure – if it wasn’t on the economy, it would have been something else – and she’d throw any idea out of the window or any colleague under a bus. Gladly, it didn’t take long for her to be found out; sadly, it’s been to the detriment of our democratic system.
I’d take issue with Kwasi’s lack of intellectual tools. However he patently lacked the political tools; perhaps he’ll demonstrate a little more nous if he gets another chance.
“Be quiet, Joe Public!”
“But…”
“Just sit tight, we know what we’re doing…”
“How come we are where we are today then?”
Good article, thanks. I share the concern that Truss was removed not for the risky and immoral policies of Reaganomics, for which she should have been removed by the electorate, but for challenging the elite consensus.
Wider issue is that we have too many politicians who have never had to adjust their silly ideas to reality.
Go back a few decades, and you had politicians whose viewpoints were tempered with hard-won experience. Whether gained through being in business on your own account, or by being a trade union leader. You knew how the world worked and the enormous gap between theory and practice.
MPs are not like that any more. Instead of real-world experience, MPs chair nerdy think-tanks. Truss is a think-tank junkie. Kwarteng was an academic. Johnson was a journalist. Everyone is skewed towards theories that they have not tested. And, obviously, most voters are armchair theorists. And too many people have MBAs and PPE degrees, both of which are designed to give you the appearance of knowledge, rather than the substance of it.
Always obvious to me how little most MPs and voters know about the rule of law, for instance.
So you have a perfect storm of virginal theorists, with whimsical notions about how things should work.
And these noobs by and large have taken over.
Sunak is an exception. He has been in business and knows how money works.
I’d propose 2 eligibility hurdles for public office:
– any association with any think tank (speaking at, membership of) should disbar you from public office; and
– nobody should be allowed to run for public office until they have had 10 years of work experience in the real world – excluding all jobs associated with politics (MP’s assistant, lobbying, PR, journalism)
Damned democracy, eh?
Five major plus points over and above Rishis talent, experience, intellect and financial knowledge:
• He does not need the job or the emolument.
• I suspect that he has very little interest in the ” racist” obsessives.
• Ditto even more so LGBT
• … and eco sandaloid zero zombies.
• He will strengthen ties with India, who should be our no 1 ally, not least in the war against Islamic terrorism.
• Ditto Israel.
But he is a WEF puppet.
Who isn’t these days?
In six words ‘a superb product of the Empire’.
Yes!!
I find that quite encouraging.
Indeed, what happened to PM Truss is similar to what would have happened to PM Corbyn. A very British coup indeed.
‘the British media appeared to be united in its verdict’
That seems to cover a lot of issues nowadays.
“ῥίζα γὰρ πάντων τῶν κακῶν ἐστιν ἡ φιλαργυρία” : loosely translates as :’The root of all evil is the love of money’.
1Timothy. 6:10
Often is but but rubbish that it is the root of ALL evil.
Then St Paul is in error, or as Hilary Clinton would say “did a misspeak”.
St Paul was in error on a umber of important things
St Paul probably would have dedicated more of his writings to the love of money if he genuinely believed it was the root of all evil. Taking that literal translation as the absolute meaning sounds daft, so naturally, it’s a nice interpretation for those of us who take pleasure in disregarding St Paul or Christian writings more generally.
“For the love of money is the route of all kinds of evil” is the translation used in non-KJV versions (big fan of KJV mostly). That’s obviously a reasonable claim so not as much use for Paul bashing.
Sounds a lot more reasonable.
Agreed, the KJV is perhaps slightly unkind, but Paul, given his background is an irresistible target, and at least he had a satisfactory ending, as he so richly deserved.
Seems to me that the complexity of economics, modern financial instruments and the late-stage-empire survivalism we are living with will allow commentators to vigorously argue the case from every corner.
But every time someone says *there is no technical reason* why excessive government debt or MMT or collapsed secondary bond markets should negatively affect a country’s economy I think “Yeah, but in reality it always does!”.
Better to trust historical track record than economic theory. The majority of Weimar era economists swore blind and probably believed there was no link at all between adding 1 billiard marks to the money circulation in a week and the x6 inflation in the cost of 1 egg.
https://www.goodreads.com/book/show/8567383-when-money-dies
The problem is not “the primacy of politics over technocracy.” The problem, with Brexit as with Trussonomcs, is the primacy of politics over reality. Politicians pretend that they can deliver any nice thing they happen to dream up – as in ‘having your cake and eating it’. Voters lap it up, and vote for fantasies. And both politicians and voters become horribly affronted and moan about nasty technocrats when it turns out that no matter how strong their will or how entertaining their antics, reality still gets the last word.
The only unreal thing about the mini-Budget was the two year blank cheque energy bills support. That’s what the bond markets took fright at. But, of course, that was very popular with the public so the blob had to blame the turbulence on the tax cuts. Which conveniently aligned with their anti-Tory, tax cuts for the rich agenda.
Spot on
Oh come on.
Truss’s tenure was hardly catastrophic.
Her biggest failure was her blind, unquestioning
support for Biden’s proxy war against Russia.
So ‘only 12% of voters supported scrapping the cap on bankers’ bonuses; only 11% supported abolishing the top rate of income tax for high-earners; and only 19% thought it was a good idea to cancel the planned increase in the corporation tax.’ Is this the way to go in setting economic policy on the basis of popularity. Seriously?
Indeed, it is utterly inane.
If a supposed ‘conservative’ govt can’t reduce the top rate to where it was for 12 years under last Labour govt, what is the point of the Tories? If they put corporation tax UP during a recession & thereby guarantee many struggling businesses go bust, what is the point of the Tories?
I am now looking at Reform UK’s policies because if the choice is voting for Blue Blairites or Red Blairites, I’m going to find someone else to vote for.
I fail to see what point you’re trying to make. Are you saying that politicians should ignore the views of a majority of the electorate?
A generation ago ministers were focussed on the next election, up to 5 years ahead. Today they are focussed on the next opinion poll. Higher taxes on companies, the rich, and the self employed, will always play well in the short run. But if they damage the economy the resulting economic malaise is unlikely to benefit the ministers who imposed them.
On this occasion I agree with Thomas Fazi.
All the media and technocrat focus was on the 45% and Bonus tax changes. These were minor costs compared to the Energy Support package but afforded an envy narrative to destroy Truss’s attempt to challenge the established orthodoxy of the technocracy.
In fairness to the IMF they did indicate that Truss’s policy would lead to higher growth but only after joining in the denigration of the mini-budget.
Now we have Sunak whose career profile matches perfectly the rest of the Technocrats. (PPE Oxford, MBA Stamford, Private Equity Finance)
Today Huw Pill from the Bank of England (CV: PPE Oxford, Harvard and ECB) speaking at ONS disparaged the mini-budget and praised the dialogue between ONS and BoE wistfully reflecting on the better relationship with Treasury before Kwarteng attempted a reset.
In business it is much easier to focus on the internal costs and efficiencies. This is the Accountants approach to bottom line improvement. What is much more difficult is developing new products that the market wants and driving up revenue. This entails more risk and ultimately greater reward. It requires entrepreneurs not technocrats. This is what creates international champions like JCB and the Rolls Royce of RB211 fame. Does anybody today remember GEC, FKI?
Unless we have leaders who support and develop international success we are destined for economic stagnation and decline. A large public sector technocracy is a recipe for disaster.
Interesting, but maybe consider big market players don’t want a free market at all, they want regulation and subsidies
This may come as a shock, but whilst “markets” can unmake a Prime Minister, they can’t elect one in a general election (well, not yet).
Hard to see how any small-c conservative would vote for a Blue Blairite like Sunak & over the last few days, you can practically hear the sound of Tory Party membership cards being torn in half by people who actually voted for Liz Truss to lead the party.
The choice many now see is either you vote Tory in next GE & get a Blue Blairite, and if you don’t, you get a Red Blairite. So frankly who cares? Not matter who you vote for, you get a Blairite.
I don’t think the party will recover. Sunak is now thinking of a digital currency centralised by a government bank. This is what they have in China which means total control over the populace where you can be fined directly from your centralised account if you don’t tow their line or have a good carbon footprint etc. etc. Wouldn’t this be the beginning of a dictatorship?
Such a great article. Favourite unherd writer.
In hindsight of tonight though re: liz truss phone hacking, russia accusing uk of nord stream and attack in crimea, potentially blowing up Russian black sea flag ship, wish I could be more eloquent but WTF.
Was she stitched up from the start? Or is this the real reason she had to step down? And it was all some weirdly orchestrated fiasco?
Mind blown, battening the hatches down right now.
Think you should get on this question right now Mr fazi, please, if you have time, I have to go back to work next week, would be much appreciated 🙂
Interesting you have decided that people don’t want a small state … I think that assumption is deeply flawed.
Working people would vote for lower taxes and smaller govt., particularly if a programme to axe quango’s and so many other Govt Agencies.
ShrinkTheState
gov.uk/government/org
23 Ministerial Depts
20 Non Ministerial Depts
418 Agencies & public bodies
109 High Profile Groups
16 Public Corporations
3 Devolved Administrations
Interesting.
Excellent Article. Thanks for sharing this post.
The government would not be dictated by the markets, if 50 years of economic incompetence had not got us into £2.7 trillion of debt.
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Gobbledygook.
Lots of quality points in the article, though I suspect market & technocrat power may not be quite the obstacle to an economically Left agenda that Mr Fazi seems to think. The reason is Labour politicians tend to have more operational competency than your typical Tory – albeit with the sad exception of electioneering. Let me talk a bit about John McDonnell, my local MP. When JC made him Shadow Chancellor, JM was such a sincere socialist he didn’t even have the cash for a good business jacket (word is he often gave away much of his MP’s salary to the struggling folk he met in his case work.) But he soon sorted himself out, and launched a city charm offensive. Almost every week he’d be having meetings with technocrats, bankers & other market players. So in contrast to Truss & Kwartengs’ little attempt, if Labour had won in 2017 or 2019, then the ground would have been prepped for radical economic policy with reduced risk of provoking a major market reaction. That wouldn’t have been as hard as some might think – my market knowledge is a little out of date now, but certainly around 2008 – 2010 almost all City economists were Keynesian (in a sensible sense, not the Truss distortion) & they’re probably still Keynesian now.
Keynes’ theory was basically a pyramid scheme