The last week has seen the UK economy go up in flames, sparked by the unhinged plans of the reckless Tory leaders. Just when the British ruling class thought things couldn’t get any worse, Liz Truss came along and proved otherwise.
There is a common saying that people get the government they deserve. This saying is actually incorrect, as Trotsky points out in his masterly article, The Class, the Party and the Leadership. The same people can, and do, get very different governments in a very short space of time.
But what is certainly true is that the ruling class of every country is now getting the leaders that it richly deserves. These leaders are pushing the whole situation ever nearer to a deep and dangerous precipice.
The case of Britain is very clear in this respect. A long time ago, Trotsky pointed out, the British ruling class did not think in terms of years but centuries. In saying this, he recognised the farsightedness shown by many (though by no means all) of the leaders of British imperialism. How otherwise could a tiny island off the coast of Europe succeed in dominating a quarter of the globe?
Part of this success was due to the fact that the political leaders of the Conservative Party were carefully selected, not from the bourgeoisie – the money men of the City of London whose calculations are almost always based upon considerations of short-term gain – but from the landed aristocracy.
The Tory grandees who ran the main ruling party with an iron hand may not have been political geniuses, but they were, as a rule, men with a certain cultural level and understanding of history. And since they were landowners, whose fortunes were inherited and not derived from direct exploitation of the workers in the factories, and not dependent on the vagaries of the money market, they were able, at least to some extent, to develop a broad view of world politics, and elaborate the necessary long-term strategy for the maintenance of Britain’s imperial power.
But all that changed when, over half a century ago, the Tory Party made the fatal decision to introduce democracy into the election of its leadership. Very bad mistake! In place of the old aristocratic grandees, we saw the rise of the ignorant middle-class parvenus with the parochial mentality of a shopkeeper. Margaret Thatcher was the very epitome of this kind of person.
Now Liz Truss is a worthy descendant of the so-called Iron Lady. She was selected as leader of the party, not for her intelligence, but precisely because she is extremely stupid. This fulfils the two most important criteria to lead the present-day Tories. First, she is a faithful reflection of its rank and file and most of its leaders.
Second, since she has the mental abilities and personality of a ventriloquist’s dummy, she can be relied upon to repeat like a parrot every sentence that is whispered in her ear by the Ventriloquist-in-Chief, Jacob Rees-Mogg: representing the dominant, hardline Brexiteer, rabid right wing of the Tory Party in parliament.
It is true that Mr. Rees-Mogg himself is hardly a suitable candidate for Mastermind. But to compensate for his lack of brains, he appears to qualify as a certifiable lunatic. The Ship of State is therefore in very good hands, as the First Mate famously remarked to the captain of the Titanic a few minutes before it proceeded at full speed in the direction of the nearest available iceberg.
The policies of so-called Trussonomics are neither new nor original. They are a merely half-baked rehash of the discredited monetarist policies that were pursued by Ronald Reagan and Margaret Thatcher half a century ago. They, in turn, were merely a crude repetition of the so-called Say’s law, which was comprehensively demolished by Marx.
Even then, that idea was not new, since it had been put forward by John Baptiste Say as early as 1803. This so-called ‘law’ states that the production of goods creates its own demand. In theory, therefore, crises of overproduction are impossible. This was already shown to be in complete contradiction to the facts by a series of commercial crises in the 19th Century.
Yet this same nonsense is repeated today by certain bourgeois economists (the monetarists) whose belief in the absolute power of the free market to solve all problems remains unshaken, although it has been continuously contradicted by experience. The latest experience was the crash of 2008 – something that, according to the official economic theories – could never have taken place. But take place it did.
And here is yet another contradiction. How did governments respond to that crisis? According to the monetarist theory, they should have just left the markets to sort out the problem all by themselves. Following this logic, the state and governments have no role whatsoever to play in the economy.
Is that what happened? On the contrary. In every case, governments immediately intervened to pour in billions of dollars, pounds and euros into the privately-owned banks in order to save them, and the entire capitalist system, from collapse. This runs entirely counter to every principle of monetarism and free market economics.
Precisely the same recipe was pursued during the pandemic, which resulted in huge and ultimately unsustainable debts. And now the bourgeoisie is compelled to resort to the same desperate measures in the face of the global economic crisis and in particular the cost-of-living crisis. They are forced to act in this way, not for economic reasons alone, but principally to avoid the social and political consequences that would result from a general economic collapse.
The capitalist system is, in effect, only being maintained by the state and government intervention, which is propping it up in the same way a disabled person is propped up by crutches.
But this also creates new dangers for the capitalist system. A huge mountain of debt has been built up that threatens the stability of the world economy. And mountains, sooner or later, will experience avalanches.
The whole situation is unsustainable in the long run, because these debts will have to be repaid. This is elementary for a child of six with an average level of intelligence, but it is not at all elementary for the ladies and gentlemen in Westminster.
Ms. Truss has made it very clear that she regards the cutting of taxes as the magic lever that will pull the British economy out of recession (according to the Bank of England, it is already in recession) and boost economic growth. All that is necessary is to put billions of pounds more into the pockets of the bankers and capitalists.
That, it is alleged, will encourage them to invest in Britain, which will then enter a golden age of economic prosperity that will benefit every man, woman and child in this country. This theory is so nonsensical, so irrational, and so full of holes that nobody but a complete moron could pay any attention to it. But this is precisely the class of people who now control the destinies of Great Britain.
In order to pay for this huge government subsidy to the rich, who never asked for it and do not need it, the British government has decided to borrow money that it does not possess, thereby vastly increasing the national debt.
But this solution – apparently so obvious and simple – immediately brought about the biggest crisis that has ever been experienced in British history. The Titanic has already hit the iceberg and is sinking fast.
Sterling in freefall
This fatal collision occurred last Friday, and that collision was infinitely more damaging than the first one. It happened very soon after the new Chancellor Kwasi Kwarteng announced the government’s mini-budget, which was a perfect case of Robin Hood in reverse: robbing the poor to make the rich even richer. Now one might have expected the investors to have been delighted at this. But not so!
The markets immediately panicked and began dumping pound sterling, sending the British currency into freefall. By Monday, the pound had tumbled to its lowest level against the dollar in history and UK government bonds went into meltdown, provoking panic in London.
What could have caused this financial nervous breakdown? It was clearly not the more-than-generous offer of the Chancellor, who held out the mouth-watering prospect of juicy profits for those willing to invest in the United Kingdom. No, it was the fact that investors are not little children, and they have long ago ceased to believe in fairy stories.
The hard-headed men of money have read the old tale about Dick Whittington, and are well aware that the streets of London are not actually paved with gold, but other substances altogether. Nor are they inclined to place much credence in the skills of a conjuror who pulls a white rabbit out of a hat. For these very sound reasons, they do not place much trust in a Chancellor who promises to pluck billions of pounds out of thin air.
Money, they know very well, does not grow on trees. Therefore, the markets’ reaction to sky-high spending pledges combined with sweeping tax cuts caused investors to ditch sterling as fast as you can say abracadabra.
The collapse of the currency continued on Monday when Asian markets threw themselves with gusto into the frenzy of selling, after only a feeble and fleeting rally.
In vain did the Bank of England issue brave (and unprecedented) proclamations, promising to raise interest rates to any level in order to stop the unstoppable slide of the currency. The prospect of even-higher interest rates did not bolster sterling against the almighty US dollar.
That was hardly surprising in view of the fact that the Bank made no mention as to how much the increase would be, nor for that matter, when it would be. The markets therefore ignored it completely and the selling continued apace.
The reaction of the markets was entirely predictable. Britain’s national debt had already reached an unviable level before all this. In August, the public sector borrowed £11.8bn, higher than City forecasts of £8.8bn and almost twice the amount estimated by the Office for Budget Responsibility earlier in the year. The fiscal watchdog thought the figure would be only £6bn.
Now the situation is far worse. Including the energy package, which is to be financed by borrowing and could amount to £150bn over two years, Capital Economics said the deficit was likely to be £165bn this year – representing 6.5 per cent of national income.
Britain’s economy is now in recession, the Bank of England has said, as it raised interest rates to tackle the worst bout of inflation for 40 years. And this will be made considerably worse by the government’s plan to increase borrowing at the same time that it slashes taxes for the richest one percent.
Britain’s biggest set of tax cuts for 50 years includes axing the 45p additional rate for the highest earners as well as a sharp reduction in levies on dividends. But concern about the amount of debt needed to finance the tax cuts and billions of pounds of energy subsidies sent the cost of borrowing sharply higher as the pound slid to a 37-year low.
“The UK is behaving a bit like an emerging market turning itself into a submerging market,” former US Treasury Secretary Larry Summers told Bloomberg. “Britain will be remembered for pursuing the worst macroeconomic policies of any major country in a long time.”
Sterling has now fallen to its lowest point against the dollar since records began. I can just about remember a time when there were four dollars to the pound. Now they are practically at the same level. And the pound may still fall further. This has very serious consequences.
The falling pound will automatically mean a steep increase in many imported goods, including food and energy. The price of petrol will soar to new levels and that will affect the price of everything else. In an attempt to combat inflation, the Bank of England will raise interest levels to at least double the present rates, which will hit many home owners and increase the price of debts.
At a time when millions of families are already forced to choose whether to heat their homes as winter approaches or feed their families, a further vicious twist of the inflationary spiral will cause levels of misery probably not seen in Britain since the Great Depression of the 1930s.
The policies of Trussonomics immediately placed the Bank of England between a rock and a very hard place. A majority of the Bank’s nine-member monetary policy committee (MPC) voted to increase the key base rate by 0.5 percentage points from 1.75 to 2.25 percent – its highest level since 2008.
But this will not be nearly enough to stop the alarming slide of the pound. Financial markets expect rates to rise above 4 percent, or even 6 percent by the summer of next year. Even this may not be sufficient. But it will have several unforeseen and certainly unwelcome effects. Rising interest rates will cause mortgage repayments to rise exponentially.
In many cases, the amounts paid every month by homeowners will double; for example, from £660 to £1,150 on a modest property. This can mean an extra £6,000 a year for many families, who were already struggling to pay the increased price of energy. It will immediately cancel out any benefit from tax cuts, which for the great majority of people will only amount to a few hundred pounds.
It raises the alarming prospect of homeowners, unable to pay their mortgage, losing their homes and being thrown on the street. Since it was the proud boast of the Tories, ever since Margaret Thatcher, that they were creating a “property-owning democracy”, it will be a devastating blow to their prospects of winning the next election.
It will also greatly increase the cost of borrowing, not only on the credit cards of ordinary citizens, but also of the government itself, which will have to find billions more to finance the outrageous new debts that Ms. Truss and her Chancellor have decided to incur, not to help the millions of people struggling with the cost of living crisis, but the wealthiest one percent in the land.
Hence, we have not only governance by the rich, of the rich and for the rich, but governance of the lunatics, by the stupid and for free market economists with their heads up their arses. But others, whose heads still sit on their shoulders, contemplate the ghastly mess as they would a scene out of a particularly macabre horror movie.
The government is now coming under heavy pressure to abandon its insane economic policies. And the sharpest criticisms do not come from Keir Starmer and the Labour Party, which are now playing the role of His Majesty’s Loyal Opposition. No, the most stinging attacks come from big business, including the former head of the Bank of England.
But the most damaging criticism came from the IMF; that is, from the High Priests of international finance capital. It delivered a devastating onslaught in terms normally reserved for Third World basket cases.
A spokesperson for the IMF said late Tuesday:
“Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy… Furthermore, the nature of the UK measures will likely increase inequality.”
The IMF also said that Kwarteng should use a plan scheduled for release in November to “re-evaluate the tax measures, especially those that benefit high-income earners.”
This language is surely without precedent when referring to what used to be considered to be one of the world’s leading economies. Yet all these warnings and admonishments have fallen on deaf ears. The ladies and gentlemen in London are not listening. Ms. Truss is standing firm. And the Titanic continues to sink.
The price of chauvinism
How is one to explain the stubborn resistance of the present government to heeding the voice of reason? There is only one possible explanation for something that closely resembles a pathological desire for self-harm and national suicide.
This whole mess flows directly from the insane delusions of grandeur that drove a significant layer of the Tory Party leaders to push Britain out of the European Union, which constituted (and, at least for the time being, still constitutes) Britain’s biggest trading partner. Such an irrational decision would inevitably cause irreparable damage to the British economy.
Yet those responsible to this very day cling to the fantasy that it was not only the correct decision to make, but the only road that leads to national prosperity and international glory.
These ladies and gentlemen are living in a dream world. They wish to turn the clock back to the good old days when Britannia ruled the waves; to recreate the old Empire, or something that resembles it; to restore Britain’s rightful place as the chief power, not just in Europe, but on a world scale.
The chief representative of this daydream is none other than Jacob Rees Mogg, who is known jocularly in parliamentary circles as the Honourable Member for the 18th Century. But this narrow chauvinism is characteristic of every one of the ultra-right-wing, free-market fanatical Brexiteers who now dominate the Tory Party in parliament.
The chauvinistic disdain for all foreigners does not restrict itself to the usual racist contempt for black and Asian people and Europeans who smell of garlic and cannot even speak English. It even extends (although this is never admitted in public) to our American friends, whose pretensions to world leadership have been far too exaggerated in recent times.
The nationalistic arrogance of these ladies and gentlemen really knows no bounds. Does our history not show that we are superior to all other peoples and races on the terrestrial globe? What right have insolent foreigners to dictate to us? Did we not win two world wars? And do not we possess the ultimate nuclear deterrent?
This stupid nostalgia for a long gone past has completely eradicated any semblance of rational thought in the minds of the faction that now rules the roost in Westminster. And in the person of Liz Truss they have found a perfect leader. In common with the rest of her gang, she has an almost comical misconception about Britain’s real place in the world.
That was revealed from the very first moment that she entered 10 Downing Street. Let us for just one moment retrace our steps to the first flush of success (not to say hubris) that followed Ms. Truss’ rise to High Office.
The ‘Special Relationship’
What was the first thing she did? No sooner had she made sure that the late Queen was safely buried, our new Prime Minister hastened to New York, as in the good old days of Empire, when a new colonial Viceroy hastened to London to do homage to Queen Victoria.
The only difference is that nowadays the centre of the Empire is in Washington, not London, and the British Prime Minister’s first port of call is to kneel before the Throne of the Great White Chief in the Oval Office. This flight over the Atlantic was also to carry her on her historic mission to the United Nations, and her addled brain was now filled to overflowing with a misplaced sense of her own importance.
As soon as she arrived in New York on her first overseas trip as prime minister, she astonished the world with a truly amazing admission: the much-vaunted UK-US trade deal, which, as you will perhaps recall, was long trumpeted as one of the biggest prizes of Brexit, is no longer on the horizon.
Yes, you heard right: not today, not tomorrow, not even the day after tomorrow, but in the dim and distant future, “months if not years”, she proclaimed, without even pausing for breath or blushing at the sheer outrageousness of what had all the appearance of a casual, throwaway remark.
In purely economic terms, this is the equivalent of admitting to the unfortunate passengers of the Titanic that the last remaining lifeboats had, for some reason or other, been left behind in Southampton, and therefore, would regrettably not be available for some considerable time: “months if not years”, in fact.
But then, why worry about a few lifeboats? One of her admirers hastened to reassure the baffled audience with the confident claim that: “Our relationship with the US goes far beyond talk of trade deals.” Ah yes! The celebrated Special Relationship that is so often spoken of – in London, although nowhere else, as far as one can make out. But what does this actually mean?
It is quite true that Joe Biden is interested in matters other than a trade deal with the UK. In fact, it is so far down his list of priorities that, as far as we know, it did not even warrant a mention in the talks that were held at the UN. These centred on policy towards the war in Ukraine and “broader security co-operation”.
Truss said: “The number one issue is global security and making sure that we are able to collectively deal with Russian aggression and ensure that Ukraine prevails.” The prime minister added that it was important that Europe and G7 countries worked together, “to make sure we are not strategically dependent on authoritarian regimes”.
Ms. Truss was doubtless betting that all this would be music to the President’s ears. Which no doubt it was – but only up to a point. Uncle Joe must have felt a little bit irritated at the all-too-evident efforts of the lady from London to present herself and Great Britain as the real Leaders of the Free World. Had no-one informed her that this role was reserved for the United States of America?
It is a well-established fact that one can have too much of a good thing. If one eats too much ice cream, it is almost sure to disagree with one’s digestive system sooner or later. And it is possible to be more Papist than the Pope, which does not go down terribly well in the Vatican.
So, while before the assembled media of the Free World, it was all smiles and handshakes, as soon as the doors had closed, one could just about make out an exasperated voice exclaiming: “Who the hell does this dame think she is?”
The President’s mood will not have been greatly improved when it came to the thorny subject of Northern Ireland and the notorious Protocol. Why did Ms. Truss decide to make her statement announcing that a trade deal with America was not on the agenda?
That was no accident, but a pre-emptive strike. She was well aware of Joe Biden’s views on Northern Ireland. She knew full well that he would warn her that serious consequences will flow from any attempt on her part to placate the Unionist lobby by abolishing, or severely restricting the Protocol that was agreed with the European Union as a means of squaring the post-Brexit circle of trade between the South of Ireland; which remains in the EU, and the North of Ireland, which, as part of the UK, has left it.
Both Biden and Nancy Pelosi have warned that there will be no prospect of a trade deal with the USA if there were any move in that direction. By ruling out such a deal in advance, the British Prime Minister was effectively removing this weapon from his hands. But this ‘smart’ move was entirely counter-productive and typically stupid.
Let us remind ourselves that, when Britain left the European Union, Boris Johnson, Rees-Mogg and the rest of the Brexiteer gang insisted that Britain would be “open for trade with the rest of the world”. But what remains of that proud boast today? Britain is virtually at war with Russia, has appallingly bad relations with China, and now is obliged to discount any possibility of a trade deal with the United States.
Thus, with a stroke of a pen, Britain has deprived itself of the three most important markets outside the EU. And when it moves to dissolve or radically alter the Northern Ireland protocol, it will provoke a reaction from the European Union that will severely undermine its trade with Europe.
Now, the British economy – like the rest of the world – finds itself squeezed by the powerful embrace of a Strong Dollar. No Special Relationship here! Truss may bluff and bluster for a time. But that cannot go on forever.
Eventually, the markets will decide that Britain is no longer a viable country that can be relied upon to pay its way, that it is just another basket case, to which we cannot risk sending large sums of money. At that point, the IMF will step in to administer a much-needed but very painful lesson in real market economics. Then the country that was once known as Great Britain will occupy its true place in the world – as a banana republic.
So there we have it. Having walked out of the European Union, Britain stands exposed, not as a great power, but on the contrary, as a weak, bankrupt and isolated little island off the coast of Europe. And no amount of flag-waving and chauvinistic rhetoric will alter that fact.
The Bank of England is also now intervening, spending the eye-watering sum of £65 billion purchasing British government bonds in an attempt to calm market fears. But even this desperate measure will only have a temporary effect, like attempting to bind a gaping wound by applying a piece of sticking plaster.
Like a horse that is careering wildly out of control, the chaos in Britain goes from bad to worse at every level: economic, financial, social and political.
For the people of Britain (and not only them) it will be a very cold winter, but it also promises to be a very hot one. Everybody can see that the situation is reaching a boiling point. The present wave of strikes shows that the working class is ready to move.
There are already signs that a very militant, angry mood exists, and not just among the traditionally militant railway workers and dockers, but even among layers that have never been involved in struggle, such as criminal barristers, nurses, and doctors.
And this is just the beginning. The conditions of life for millions of people have become utterly impossible. When families are physically unable to put food on the table for the children, or to keep their houses warm in freezing conditions, when even middle-class families fear that the homes may be repossessed, people are left with no alternative but to take the road of struggle.
Under these explosive conditions, the policies pursued by a government are not at all a matter of indifference. A competent and skilful government might somehow mitigate the effects of the crisis and at least postpone a head-on clash. But such a government does not exist, and the existing one seems hellbent on stoking the fires of class struggle and possibly creating the conditions for the all-out general strike.
Of one thing we can be absolutely sure. Whatever Liz Truss does now will be wrong.