Three years ago today, Liz Truss entered 10 Downing Street determined to hoist the flag of born-again Thatcherite radicalism over the nearby Treasury. Within days, however, it began to flutter like the confederate flag after the Battle of Gettysburg — a tattered rag redolent of defeat. Today, under a different government, the air is once again thick with the scent of fiscal trouble — despite a Chancellor determined to yield to the Treasury’s most traditionalist edicts. Unsurprisingly, when a country’s business model is broken, the tension between elected politicians and Treasury mandarins becomes a mere background hum.
While the current anxieties over the finances of the British state are nowhere as acute as the market tantrum that toppled Liz Truss three years ago, there are important similarities. In the days preceding the rise of Liz Truss and her government’s notorious mini-budget statement, the then $24-trillion (now $29-trillion) US Treasuries market, whose animal spirits decide whether global capitalism breathes or chokes, had already entered what one financial analyst called a “vortex of volatility” not seen since the crash of 2008 or the first days of the pandemic. Not only had the yield on the US government’s benchmark 10-year bond risen sharply but, far worse, a large number of investors had recently stayed away from an auction of new US debt.
Things were not better across the Channel. Days before the Truss government’s fiscal implosion, the European Systemic Risk Board had issued its first-ever general warning. Established by the EU after the 2008-09 crisis, the body effectively confirmed that Europe’s financial markets had been sucked into the American-born volatility vortex. The continent was reeling. Electricity providers faced bankruptcy, Germany’s mighty manufacturing industry was shutting down as natural gas evaporated, and public and private debt was climbing rapidly.
Into this maelstrom, Liz Truss and her Chancellor, Kwasi Kwarteng, chose to unleash their pseudo-Thatcherite rebellion. Its centrepiece was a package of vast, unfunded tax cuts for the very rich, sugar-coated with condescending encouragement for the precariat to work harder — perhaps one day to earn a tax cut of their own. Yet, it was not this blatant class war, wrapped in Reaganite rhetoric, that ultimately doomed them. The pre-existing transatlantic panic had already guaranteed their mini-budget would trigger interest rate hikes. Against that backdrop, Truss’s fatal error was a lack of establishment etiquette: sacking a top Treasury mandarin while displaying a less-than-sterling obsequiousness toward the Bank of England. Consequently, when government borrowing costs did rise, the discomfited mandarins at the Bank and the Treasury took just a moment longer to react than they might have — a deliberate delay, and a lasting lesson for politicians on both sides of the aisle, not to mention Nigel Farage’s Reform, the revitalised Greens and the new socialist party Jeremy Corbyn and Zarah Sultana are putting together.
Today, Liz Truss is rightly condemned for a trickle-down growth strategy that was never going to work and her dismal failure to smell the financial panic already souring the air before she took power. Her defence, that her downfall was engineered by the Treasury and Bank of England establishment, contains a grain of truth. But this begs the question: if her plan was truly in keeping with Thatcher’s legacy, why did those same institutions never stage a coup against her idol, yet did so against her? The utterly unconvincing explanation is that the Treasury and the Bank have since turned socialist, “woke” etc. A simpler truth is that Liz Truss is no Margaret Thatcher.
Thatcher grasped the dirty secret of trickle-down economics: only a sliver of tax cuts for the wealthy ever finds its way into productive investment. When the masses lack spending power, big business funnels its windfalls not into factories or innovation, but into share buybacks to inflate stock prices and executive bonuses, or into speculation in financial and property markets. Only one force could keep this vicious cycle from seizing up entirely: the state. And so Thatcher used the power of the state to feed the financial beast with public wealth.
Thatcher’s growth was achieved not through organic investment, but by liquidating public capital. Her governments directed society’s common wealth — council houses and utilities (gas, electricity, water) — into the financial markets at discounted rates. The result was less a triumph of free-market theory and more the mass liquidation and transfer of public assets into the City’s circuits.
The UK has operated on Thatcher’s business model ever since. Even the Blair/Brown government, which used tax revenues from the City to fund public services, the NHS mostly, presided over a continued erosion of the UK’s productive capital. Far from reversing Thatcher’s financialisation, Labour accelerated it by dismantling the remaining regulatory constraints on finance and injecting the profits from newly deregulated public services (mostly the so-called Private Public Initiatives) back into the City’s recycling mechanism.
Then, in 2008, the vicious cycle of financialisation collapsed under the weight of its own hubris. Immediately, the Bank of England joined forces with the Treasury to bail out the City. To this splendid example of socialism for the rich, George Osborne added austerity — which, by crushing aggregate demand, extinguished any remaining spark of investment in Britain’s productive capacity while, all along, the Bank of England’s money printing was inflating the emergent assetocracy.
Today, we should be under no illusion: growth remains stubbornly immune to the tax rates, low or high, imposed on the highest earners. As Paul Krugman has demonstrated, neither Ronald Reagan’s tax cuts nor Bill Clinton’s tax increases altered America’s income trajectory in any meaningful way. More recently, James K. Galbraith showed how the skilfully curated fantasy of trickle-down economics paved the ground for Donald Trump. In Britain itself, we observe that the output per worker is trailing Germany’s by around the same percentage as it did in 1979.
And there lies Liz Truss’ tragedy: she tried to do a Thatcher in an era when the British state had run out of silverware to pawn in order to feed the assetocracy Thatcher’s revolution had brought into being. Lacking Thatcher’s access to plentiful public assets to be injected into the financial sector, and with the Bank of England too spooked by inflation to print more money to revitalise financialisation, Truss ended up trying to achieve the impossible.
Paradoxically, Rachel Reeves, the current Chancellor who aimed to project the precise opposite of the Truss-Kwarteng image, and who bends over backwards to please the Treasury and Bank of England mandarins, is haunted by the very same spectre: a drastic inability to challenge the assetocracy. This condemns her to a grand failure, as she strives hopelessly to feed the same beast without any public assets left to liquidate. And all that during another period of global financial anxiety over, this time, the solvency of the entire West.
“Rachel Reeves, who aimed to project the precise opposite of the Truss-Kwarteng image, is haunted by the very same spectre.”
The result is a paradox: though the UK remains a rich country — immune to a Greek-style solvency crisis or an IMF bailout — its political elites are determined to keep feeding the very assetocracy they created. This guarantees a nation trapped in a low-investment, low-wage, low-productivity, low-expectations equilibrium. After four decades of this gilded stagnation, a collective discontent has built up — a frustration that remains hard to vent because most who feel it cannot clearly see its source.
In this equilibrium of hopelessness, with the Labour Party unwilling to challenge — let alone dismantle — the assetocracy, the inevitable has occurred. Mirroring the rise of demagogues in Thirties Europe, a skilled populist has surfed the gathering wave of discontent, channeling it toward the migrant, the Muslim, the “other” — who are blamed for the failures of the ruling class. Nigel Farage, perhaps the most successful British politician since Churchill and Attlee, has thus trapped the nation in a largely irrelevant debate over small boats and asylum hotels. This cleverly obscures the only question that matters: how to slay the assetocracy that depletes Britain’s collective wealth, leaving the citizens of a rich country to lead poor lives, consumed by despair.
Could Farage’s Reform possibly be the party to starve the assetocracy? A quick glance at its unfunded promises and sycophantic deference to the City makes the Truss-Kwarteng agenda seem a model of fiscal probity and independence from finance. Only yesterday, Nigel Farage had a chance to outline his growth plan for Britain at his party’s conference. In an otherwise ebullient speech, replete with Truss-like digs aimed at the Bank of England, the Treasury and net zero policies, he chose to say absolutely nothing on how he plans to tackle Britain’s stagnation. In other words, if Reform is the answer, then the question was not only cruel — it was irrelevant.
But where does this leave us? What about the progressive side of politics where a faint renaissance is stirring, marked by Zack Polanski’s rise to lead the Greens and the tentative first steps toward a new socialist party by Jeremy Corbyn and Zarah Sultana? While it’s still early days, to make a tangible difference they must first find common ground — not the easiest of tasks amongst my side of politics! Moreover, they must want to aim at becoming popular while shedding populism — which, in my definition, means caressing all ears, promising all things to all people.
What this means is that they need to explain to voters that social and ecological progress cannot be achieved costlessly — that some people, for whom the assetocracy has been a boon, will lose privileges. More specifically, they need to confront two formidable questions: how will a progressive government engineer a managed but sharp decline in asset values (including people’s homes) so as to redirect resources from unproductive speculation to productive investment? And, how will public investment result in technologies and jobs that humans and nature need in an era dominated by technofeudal lords?
In retrospect, the trials and tribulations of Truss and Kwarteng and now Starmer and Reeves were mere symptoms of a broken business model that begat an unsustainable assetocracy. If it is not dismantled in a rational, managed manner, the events of three years ago will recur, albeit in slightly different forms, again and again.
