Trussonomics Was A Disaster We Should Probably Have Seen Coming
She is an open book but there is nothing in it.
Free Market: if you are not confused, you are not paying attention.
The free market died on September 20, 2008, when Henry Paulson, with the smug arrogance that comes from being aware of impending doom, proposed and secured a 700 billion dollar bailout of the people and institutions responsible for the great recession.
Naturally, there were no financial or legal consequences. The price for participation - bankruptcy and failure - in the most successful economic system in history was taken away. After that day, if there were still any illusions of a free market, they were there by choice.
Liz Truss and Kwasi Kwarteng have certainly kept their illusions. Four years after, they coauthored a book with the unnecessarily grand title of Britannia Unchained: Global Lessons For Growth and Prosperity.
It is part neoliberal manifesto, part reactionary hit list. It reads like a Twitter thread of diatribes. Whatever you do, I do not recommend reading this book while working. The outcome is either uncontrollable laughter or uncontrollable drowsiness. Either could be fatal.
Their diagnosis has the clarity of a bitter accusation: Britain has an economic problem of sluggish growth and productivity relative to its peers and a cultural problem of laziness, celebrity glorification, and an attachment to a long gone glorious past. They maintain that these two problems are closely intertwined.
London underground tube drivers are castigated as lazy grifters. Silicon Valley and the Tel Aviv tech industry are treated with a gratituous envy. Brazil is held up as a role model to emulate. The British welfare state is denounced and must be trimmed down. There is a sly dig at the awful work ethic of pensioners, which is rather amusing since the whole point of retirement is to stop working.
Their solutions are simple: imitate Brazilian optimism, imitate the American frontier spirit, imitate the success of Tel Aviv by restraining the government and slashing taxes. The word innovation appears thirty-four times. You can fault the authors for a lot but you can't fault them for enthusiasm.
Unfortunately, they seem to think enthusiasm is enough. The book does not bother to persuade. Instead, like the dreary, long essays of John Paul Sartre, it exhausts you into agreement.
So much has changed for two of the coauthors in the decade since. Truss has gone on to be the second British female prime minister in thirty years. Kwasi Kwarteng did one better by becoming the first ever black Chancellor of the Exchequer. He lost that job yesterday. Truss could lose hers in a week.
There are many reasons for this but one of the least talked about is because that which needed the most changing - the strength of their economic ideas - was the one thing that did not change at all. The price of sticking to these illusions, like the nutritional information on a breakfast cereal, was hidden. Their success, rather ironically, has brought it into the light.
Tailor Made Fantasies.
Until the eighteenth century, the standard explanation for the origin of life was spontaneous generation. The idea owed its parentage to Aristotle who proposed that living things could emerge from non living matter. As the theory went, insects could arise from dust and geese could spring up from barnacles.
Farmers in Ancient Egypt believed that frogs came from mud and in the medieval era, it was established fact that if you kept sweaty underwear and wheat in a container for twenty-one days, it would transform into mice.
It is easy, looking back now, to laugh at the childish assumptions that underlined the theory of spontaneous generation. But illusions rarely ever leave us. Like energy, they are simply converted from one form to another.
The idea that economies and industries would simply grow and innovate if they were left to the whims and caprices of the free market is our own spontaneous generation. Don't bother trying to understand how innovation happens. Just leave the market alone. Leave all of the market alone. Growth and Prosperity for all will spontaneously generate as a result.
I suspect the reason we believe this is the reason people no dumber than us believed that maggots spontaneously emerged from rotting food: it was obvious. It was too obvious. Whenever they saw rotting food, they saw maggots. The conclusion was too easy to resist. Truss and Kwarteng looked at America. They saw free market evangelism and they saw continous innovation. The conclusion was too easy to resist.
People have lobbied many criticisms at neoliberalism over the years: it is greedy, it does damage to the environment, it treats people as disposable. I am inclined to disagree. The real problem is it is lazy: it takes everything at face value.
Consider chapter five of Britannia Unchained where Truss and Kwarteng extol the frontier spirit of Silicon Valley.
They write:
There are a number of elements to Silicon Valley's success which - explains the difficulty that other countries have had in trying to emulate it. Firstly, the proximity of Stanford University, a world leader in science and technology, offered a steady stream of highly skilled graduates in the decades following the Second World War, closely backed by local businesses such as Hewlett Packard. This is not in itself unique of course; after all, Britain is hardly bereft of world-class universities. A number of other factors have been studied, including, but not limited to, a high-skilled workforce; a creative, risk-taking culture; complementary legal and financial institutions, and the high quality of life.
So Silicon Valley benefits more than anything from a ready access to venture capital – which allows for the harnessing of risk in the interests of innovation.
Instead of the tinkering around the edges of enterprise zones, or government-subsidised green technology, we see the unrivalled power of the market in picking winners and backing innovation.
The truth begs to differ. Tesla, the most successful green energy company in the world, only got off the ground due to generous government grants and subsidies, an investment Tesla has went on to repay several times over. In fact, Tesla has received more than 3.2 billion dollars in subsidies from California alone
The steadily falling costs in solar power were made possible by decades of government funded research. That precedent continues till this day: the most debated aspect of the massive Build Back Better Bill was its generous proposals of large subsidies for renewable energy infrastructure.
Silicon Valley's first customer was the American military and the Federal government in the 1950s and 1960s for semiconductor chips. Throughout its existence, it has been bankrolled by an extensive system of grants and loans. Indeed, in an oft-repeated point, every single technology that went into the iPhone was downstream of fundamental research sponsored by the government.
You can envy Silicon Valley, and in several respects you should, but there should be no illusions about how instrumental the American government has been to its success.
Truss and Kwarteng, and many besides them, take entrepreneurs' words for it when they describe themselves as swashbuckling heroes bootstrapping themselves into fame and glory. This is no fault of the entrepreneur. They are not obligated to tell the truth. They are obligated to sell their products. Like cheap perfume, they must call attention to themselves. It is an imperative.
But it is the fault of people entrusted with that amount of authority if they buy those stories. The private sector needs the state. The state needs the private sector. They exist and flourish together like algae and fungi.
There is a reason billion dollar businesses are not being built in Somalia or Haiti: the state has ceased to function.
Postponing The Avoidable.
Here is a little secret: the smaller the state tries to be now, the bigger it will have to be later. The ‘free market’ is going to mess things up at some point partly because it is made up of people pursuing short-term gain at the expense of long-term survival, but mostly because it is made up of people and people mess things up. It's what we do
When capital is liberalized and markets are deregulated, it often pays off at first. But there is only a finite amount of good ideas in the world while there is an infinite amount of greed. Sooner or later, people are going to come up with opportunities that only benefit them or benefit no one for that matter.
And the government, to some degree or in some form, will have to clean up the mess. The result is there is more government intervention in and interference with the economy than there would have been if the state had not been so hands off to start with.
This is the extremely brief story of the savings and loans crisis, of the great depression, of the great recession, and of our current supply chain coordination problems. It's a bit like having a group of kids at a party. You can monitor them carefully and try to steer them from obvious danger. They aren't going to like it very much. Sometimes, your actions might be counter productive.
Or you could leave them alone. They are going to have much more fun that way. But you could return to face the prospects of a severe injury or worse.
It was Truss and Kwarteng's mini budget, their short-lived attempt to minimize the government's role in the economy, which led to an emergency intervention from the Bank Of England to stablize the markets. By trying to take the government out of the equation, they have made it the most important variable.
Truss' subsidies of energy consumption by British households is yet another well-intentioned but misguided policy. Years of relative neglect of Britain's energy independence by the British government have finally pushed Truss to abandon her principles and implementa staggering 100 billion dollar subsidy. Would it have taken 100 billion dollars to secure energy independence prior to this?
In a classic case of myopia, not a cent of that subsidy will go towards addressing the actual problem: investments in the energy industry that will pay off for the British people in the long run.
But it would have been impossible for Truss and Kwarteng to realize this. After all, they confidently write:
Nor can the UK succumb to the quick and easy temptation of statism – that more government spending is the answer. Corporatism has little to recommend it. The malaise lies deeper than government policy alone can addres...
When you think about it, this is a stunning admission of failure if your entire job is crafting government policy.
Government spending is not the problem. It is the nature of the spending which is the real issue. The tragedy is by failing to grasp the distinction, governments will ultimately spend more and spend unproductively at that.
With an economy in crisis and the pound in steady decline, the political careers of Truss and Kwarteng will not be the only casualties of the political careers of Truss and Kwarteng. Perhaps, they can find some comfort in that.