Crash and Burn in London

We can make one statement with certainty in favor of Liz Truss and her brief run as Prime Minister: she was not a cynical operator who made expedient promises to people to obtain office and then conveniently forgot them once there. Perhaps if she had been more of a cynical operator, she would still be in office.

Her 44 days in office were brief, but worthy of study. Her failure was so public, so immediate and so spectacular that it is possible to gain learning from it. Her first mistake was to ignore existing conditions. She can argue, justifiably, that the Conservative party members who voted for her wanted her to do exactly that. It raises the question: can anyone deliver what the Tory faithful want without wrecking the economy?

When the Conservative members of Parliament (MPs) voted on whom to replace Boris Johnson in July, Rishi Sunak always had more votes than did Liz Truss. Until the fifth and final round, Penny Mordaunt also had greater support than did Truss. However, when the vote went to the party members, Truss won with 57% of the vote against Sunak with 43%. One major reason for the result was that the program Truss put forward was what the party members wanted.

Her financing proposals sent government bond markets into a tailspin. Truss proposed tax cuts and assistance for British citizens anticipating a fearsome winter of energy costs, all to be financed with increased public borrowing. The British call their government bonds gilts, or “gilt-edged securities”. Investors fled from gilts in the face of her plans, forcing the Bank of England to intervene in an attempt to stabilize the markets. Truss canned her Chancellor and fellow true believer, Kwasi Kwarteng, on 14 Oct, but his sacrifice was not sufficient to right the ship.

Conservatives were spoiled as their opposition, the Labour Party, burned to the waterline under the leadership of Jeremy Corbyn. Since then, with Sir Kier Starmer and Rachel Reeves in the lead, Labour has been repairing its reputation and offering reasoned alternatives. If a general election were held now, most Conservative MPs could kiss their seats good-bye.

Meanwhile, the National Health Service (NHS) continues to burn in the background. The service is underfinanced and understaffed; morale is feeling for the bottom. Median wait time to see a specialist on a non-urgent basis is over 13 weeks.

No one in America should be sneering at the Brits over this. We have many problems in common. Start with public finance. The ratio of public debt to GDP is a crude but handy measure:

Country	Debt as % of GDP
Greece	177.00
Italy	135.00
United States	107.00
Spain	95.50
Argentina	89.40
United Kingdom	80.70

At these debt levels, the financial markets have the government by the short hairs. The scope of action of political office holders is reduced by what the markets will tolerate, as the Truss ministry vividly illustrates.

We have some advantages, most notably the size of our economy and the fact that the dollar is the world reserve currency, but neither of these are guarantees of invulnerability.

The rich rule over the poor, and the borrower is servant to the lender.
— Proverbs 22:7

The Conservative party also appears to have some long-term problems brewing. This month, the leadership was able to select Rishi Sunak as leader, avoiding another trip to the membership, who might have done something asinine like voting for Boris Johnson again. A split is opening up between what the politicians want and what the party faithful want. Sound familiar, Republicans?

Both countries have substantial unresolved political issues in the electorates. The people want more benefits and less taxation to pay for them. To make ends meet, please stop wasting money on benefits for other people.

“How did you go bankrupt?”
“Two ways. Gradually, then suddenly.“

— Ernest Hemingway, The Sun Also Rises