UK's Liz Truss is a symptom of a disease plaguing the free world

MIDDLE ISRAEL: UK Prime Minister Liz Truss ignored these basic laws of economic gravity, and set out to pour oil on a financial fire. But it is part of a broader global leadership crisis.

 BRITISH PRIME Minister Liz Truss attends a news conference in London last week. (photo credit: DANIEL LEAL/POOL/VIA REUTERS)
BRITISH PRIME Minister Liz Truss attends a news conference in London last week.
(photo credit: DANIEL LEAL/POOL/VIA REUTERS)

Like Lenin’s flight from communist economics in 1921, what just happened in London will be counted among the most spectacular U-turns in political history.

Liz Truss had hardly unpacked when her residency at 10 Downing St. seemed ready to end following a sudden run on the pound that was all her fault. Lurking behind this drama were economic blindness, political arrogance and mental frivolity that created the impression that the crisis is about her. It isn’t. 

Yes, what happened is first and foremost about Britain’s 56th prime minister, but it’s also about a broad leadership crisis that plagues her party, her country, and much of the free world. 

The run on the pound was triggered by the prime minister’s plan to cut taxes and subsidize the public’s energy bills, without attaching to these expensive measures any budget cuts. In economese, this means deficit borrowing. In the language of any owner of a bank account, this means spending more, borrowing more and owing more while earning less.

Financial markets would detest such a derelict combination on any day, but this one came at a time of serious global inflation, which in Britain’s case is already scratching 10%.

 British Prime Minister Liz Truss leaves Number 10 Downing Street for the Houses of Parliament, in London, Britain, October 19, 2022 (credit: REUTERS/TOBY MELVILLE) British Prime Minister Liz Truss leaves Number 10 Downing Street for the Houses of Parliament, in London, Britain, October 19, 2022 (credit: REUTERS/TOBY MELVILLE)

As any economics student knows, inflation happens when too much cash chases after too few goods. That’s why its treatment begins with cutting money supply, first by raising interest rates, which makes money more expensive; then by cutting spending, which means feeding the economy less cash.

Truss ignored these basic laws of economic gravity, and set out to pour oil on a financial fire.

Currency traders responded sharply because to them, this meant the pound’s manufacturer will soon swamp the market with more pounds. Traders thus shed billions of pounds, whose price plummeted from $1.16 to $1.04, a historic low.

The same dynamic happened in the debt markets. Bond traders lower the price at which they are ready to buy a wasteful government’s bonds, and they raise the interest rates at which they are prepared to own them. That is why the British 10-year bond’s rate more than doubled last month, from 2% to 4.5%.

The lone analogy in today’s international system to what just happened between Britain’s politics and markets is in Turkey, where President Recep Tayyip Erdogan has been obstructing monetary policy, prattling the economic gibberish that higher interest rates fan inflation. The result of this reckless imposition is 83% inflation, 10% unemployment and a 51% plunge in the lira’s value over the past 12 months alone. 

Fortunately, Britain is not Turkey. When the markets spoke, Truss summarily saluted and reversed course, firing the Chancellor of the Exchequer – that’s the minister of finance – and letting his successor undo nearly the entire package that unsettled the markets.

As of this writing, calm has been restored to the markets, where the pound’s plunge has been stemmed and also moderately reversed, to $1.13, while the 10-year bond rate slid to 3.96%.

How much of all this, then, is Liz Truss’s doing, and how much can be attributed to things larger than her?

New policy is not inherently bad

POLICY REVERSALS are not bad in themselves. Richard Nixon’s embrace of China and Menachem Begin’s retreat from Sinai violated their political vows, but are recalled as acts of diplomatic agility and political heroism. But those U-turns were about vision. Truss’s was about panic, the way Lenin, when faced with famine, disease and inflation, staged the New Economic Policy retreat from radical communism.

Truss’s panic was well earned. This was, after all, the same politician who had just left out of her new cabinet her most notable rivals in the contest for the premiership: Rishi Sunak, who was Boris Johnson’s Chancellor of the Exchequer; and Jeremy Hunt, who was Theresa May’s foreign secretary, and before that David Cameron’s health secretary.

Such a soloist attitude may be plausible in presidential systems, but in parliamentary systems it is a recipe for trouble, especially for a leader who was not elected by the public, and is therefore even more dependent on fellow lawmakers. Truss surely understands this now, but two months ago she was too conceited to deploy the spirit of humility and collaboration her situation demanded.

Even so, Truss was not alone in her frivolity.

The plan she unleashed was no secret and in fact constituted the ticket on which she ran for Johnson’s succession. The 81,326 party members who handed her the 57% majority with which she defeated Sunak are no less responsible for the mess her plan made. They heard Truss and they heard Sunak, who rejected her plan as irresponsible, and they chose Truss.

Besides defying basic economics, their choice contradicted the conservative ideology they claim to share, which says budgetary balance and monetary discipline should drive economic growth.

Worst of all, there was no original idea in this plan, other than a populist hodgepodge of socialist goodies like subsidized gas, and capitalist goodies like seaport deregulation without the bitter pills of socialism’s high taxation or capitalism’s budget cuts. 

Seen this way, what Britain just faced is a variation of the political frivolity and ideological cynicism that Donald Trump personifies in America, and Benjamin Netanyahu is ready to impose on the Jewish state.

It’s a disease. On both sides of the Atlantic, multiple democracies increasingly fail to generate leaders who combine principles, originality, vision and charisma, producing instead cynics who disorientate voters, fracture nations and destabilize politics. That’s why Australia had six prime ministers over the past 12 years, Britain’s Tories may soon have a fifth leader in six years, and Israel’s voters are now heading to the polls for the fifth time in less than four years.

Hardly a generation since its defeat of communist despotism, Western democracy is begging: help!

This column was written 24 hours before Truss’s Thursday resignation.

www.MiddleIsrael.netThe writer, a Hartman Institute fellow, is the author of the bestselling Mitzad Ha’ivelet Ha’yehudi (The Jewish March of Folly, Yediot Sefarim, 2019), a revisionist history of the Jewish people’s political leadership.