Labour will come to regret siding with the markets and the technocrats
It’s hard to describe the sacking of Kwasi Kwarteng and his replacement by arch-technocrat Jeremy Hunt — or “Jeremy Draghi” as his fans have dubbed him — as anything less than a bloodless coup. Now that the dust has settled over the mini-budget, it has become increasingly clear why there was such an overreaction.
Yes, the tax cuts were bad from a distributional perspective, but since when did financial markets, the IMF and neoliberal economists worry about inequality? The notion that the cuts threatened Britain’s “fiscal sustainability” was equally ridiculous: from a macroeconomic perspective, they were absolutely trivial.
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The real sin committed by Truss and Kwarteng was to challenge the orthodoxy by approving a large deficit-financed stimulus plan. This revolved primarily around a two-year energy price guarantee (not around tax cuts, which were marginal), and by implying that the Bank of England’s role should be to enable the government’s policies without making too much of a fuss.
This went against two pillars of the economic orthodoxy. The first of these is that the UK has racked up too much debt and now has to “balance the books” (or pursue austerity, in other words) because it is “running out of money”. The second is that elected politicians should never dare to challenge the wisdom and supposed independence of the technocrats, namely the Bank of England and the Office of Budget Responsibility, when it comes to economic policies.
The mini-budget challenged both assumptions and, at least on those grounds, it should have been defended. Indeed, shattering the myths surrounding the alleged financial constraints of governments, and reaffirming the primacy of politics over technocracy, are preconditions for the pursuit of truly democratic policies. That is especially the case when they threaten powerful vested interests in society.
With this in mind, the Left’s joining in on the Kwarteng-bashing — by paying lip service to the mainstream narrative about the mini-budget’s threat to “financial stability” — was highly peculiar. Labour even presented itself as the party of “sound money”, contra irresponsible Tory spending. Did progressives not realise that, by siding with the financial markets and orthodox economists, they weren’t actually fighting the tax cuts, but instead empowering the technocrats and paving the way to austerity? Clearly not.
In any case, with everyone from the Bank of England to financial markets to international institutions to the mainstream media colluding to bring him down, Kwarteng was destined to fall. Neither he nor Truss possessed the intellectual and political tools to stand up to the onslaught. Leftists might have relished the beating, but the project they were actually supporting should already be apparent: the return of austerity.
It’s not at all surprising that Hunt’s first decision was to completely overhaul the mini-budget’s main proposal — the energy price freeze — by reducing the measure’s duration from two years to six months. He reasoned that “it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices,” while announcing more budget cuts in the near future.
The decision to support this “coup” will come back to haunt Labour, as Tim Stanley rightly noted in the Telegraph:
One would be hard-pressed to find a better example of what Lenin called “useful idiots”.