There are simply no other words to describe it: the country is lit up by the supporters of Project Fear. We are told that the Rest are vindicated; that Truss’s “experiment” is a cautionary tale about the dangers of ideological extremism; that her reckless mistakes stemmed from the hubris that Brexit unleashed. Apparently it’s now up to ‘adults’ like Jeremy Hunt to take the reins back from the libertarian ‘jihadists’ and pursue a sensible economy anchored in sound money.
With a dangerous power vacuum now in place in Downing Street, such a bold attempt to rewrite history is not surprising. Yet it both distorts the facts and downplays the tectonic economic shifts that threw this country—and soon much of the West—into turmoil.
First, to be clear, the idea that this crisis is caused by Brexit is silly. Britain was facing an inflationary nightmare from the Covid lockdown and the accompanying waste of public funds, aided by excessive money printing as well as the energy turmoil caused by the war in Ukraine.
Nor is new Chancellor Jeremy Hunt’s fiscal strategy a return to economic prudence. His statement today was a victory for the destructive neoliberal orthodoxy that favors austerity and balancing the books over generating growth. By sacrificing almost all of Liz Truss’s tax cuts on the altar of market stability, Hunt has ensured that the country will suffer a longer and deeper recession. Pursuing spending cuts at the same time as raising taxes, he allowed the country to be thrown into a doomsday loop of depleted public services and stagnant growth.
Far from escaping the clutches of ideology, Hunt now doubles down on neoliberal dogmatism. It started with Osborne’s failed gamble on austerity, which had little basis in mainstream macroeconomics, and reached new heights with Theresa May’s decision to introduce a net zero commitment law without addressing proper spending. It culminated in the last government’s arrogant technocratic belief that it could shut down the economy and then reset it through quantitative easing.
Europhiles may like to joke that Brexit has eaten its own children, but in fact what has just happened is much deeper: technocratic neoliberalism has swallowed its supposed mother, Thatcherism. Under the watch of New Labor and then the Tories, liberalization unwittingly produced an over-capitalized economy prone to systemic catastrophe. The principles of sound money have been metamorphosed into elite cults of mass deprivation and managed decline. The values of freedom and personal responsibility were distorted into the virtues of unfettered globalization and collective sacrifice.
Most importantly, the belief that the nation-state is sovereign has been usurped by the core tenet of neoliberalism, which is the absolute sovereignty of global finance capital.
In this context, it is more useful to see the rise and fall of Liz Truss as symptomatic of an identity crisis among free-market politicians across the West, as they wake up to a world in which they cannot exist either as competent technocratic administrators, nor as a radical liberalizing movement.
This new world is a world in which both Thatcherism and Blair’s Third Way are dead. What these commentators suffering from Brexit derangement syndrome seem to have missed is that the country is reeling from what many hoped would be a transitory crisis, but now appears to be a permanent economic paradigm shift: one in which the high inflation is endemic and the social capitalist model that has been sustained by cheap credit for the past 20 years has been defeated.
Experts warn with increasing readiness that inflation appears to be endemic and internally generated. Moreover, any attempt to kill it is undermined not only by the strength of the dollar, but also by the vested interests of the financial industry. As the LDI pension panic and fears of a total collapse of shadow banking suggest, asset managers have recklessly cloaked leverage and risk in opaque derivative structures, making large rate hikes almost impossible to implement.
With the public unwilling to accept a formal return to austerity, the only remaining scenario is to succumb to endemic inflation while timidly trying to raise interest rates without crashing the entire system. It is not just the UK that is heading towards this grim new reality. The ECB admits it is now locked in a battle against a “self-reinforcing” inflationary spiral. The U.S. Federal Reserve also appears to be losing its battle as core inflation rises and Biden’s iconic “Deflation Act” lingers.
The consequences for our own country will be devastating. Government departments face the double whammy of ever-shrinking spending power in addition to severe budget cuts. British society will be permanently poorer. As public sector workers fight for a pay rise, there will be unrest on an industrial scale.
It presents a nightmare for Labour, which may soon find itself in power but paralyzed by its pledge not to borrow to fund spending. Starmer will be under huge peer pressure to defy the markets so he can increase emergency donations and public spending. He also faces union harassment over pay disputes. Arguably, however, Labor can only survive by “soaking the rich” and reframing the political conversation from recovery to redistribution.
The Tories, on the other hand, have nowhere to go. There is only room for one side of the redistribution, which means they need a proposal to increase the pie. The problem is that they have run out of plausible strategies. Sunak’s idea of prioritizing inflation is unachievable. Nor can the party position itself as a slightly less taxing version of Labour. After all, their steep decline in the polls, including among Red Wall voters, began with the announced increase in National Insurance.
More than anyone else, the Tory Wets and Remainers are one step behind the realization that the world has changed. The Brexiteers and Thatcher may have been removed, but there is no going back to the status quo. We are now in uncharted territory.
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