A Wake-up Call For Economic Liberals

This article was originally published in The Australian Financial Review on or about 20 October 2022 and was written by the author in their capacity as a contributor for that publication. It has been republished on the IPA website with permission. The views expressed are those of the author alone.

It’s foolish to claim the destruction of Liz Truss is the best thing to happen to free market economics in decades. But it shows what happens when the argument for economic freedom isn’t made.

These days, if you think as Liz Truss does (the British Prime Minister at the time of writing) that cutting taxes generates economic growth, there’s every chance you’ll be abused for believing in “extremist, crank, experimental think-tank economics”.

That’s what Truss was accused of this week by Stewart Hosie, a Scottish MP in the House of Commons. The trouble is, many people agree with him.

It’s one thing for a left-wing Scottish National Party MP to describe what was once the philosophical bread and butter of the Conservatives as “extremist”. But it’s more serious when a former Tory leader widely regarded as normal and sensible says basically the same thing.

According to William Hague, the reaction of the financial markets to the mini-budget of Truss and Kwasi Kwarteng, her former chancellor of the exchequer (who she sacked after 38 days), means the idea that “Britain can break out of the economic orthodoxy she [Truss] derided with tax cuts that spark a resurgence of growth is dead”.

Supposedly it was “unfunded” tax cuts that shocked the markets, earned the British government a rebuke from the International Monetary Fund, and prompted US President Joe Biden to quip that reducing taxes was a “mistake”.

The truth, however, is that as soon as Truss and Kwarteng uttered the slightest challenge to the received international economic wisdom, they were going to provoke a retaliation. Which is exactly what happened.

In The Times this week, Hague wrote: “No Conservative leader will be able to exhume this idea [tax cuts] or revive it for some years, unless they are ready to provoke disbelief in their party, ridicule from commentators, a crisis in financial markets and horror from voters.”

For Hague, all that’s left for the Conservative Party to do is to learn to live with big government and try to make it work a bit better. (Which is not dissimilar to what a number of Liberal MPs in this country think, too.)

Hague is perceptive enough to realise the consequences of his argument. He asks: “What is the future of political ideas? What do the parties do if they neither have the chance to shrink the state nor the room to expand it?” His answer is that because “ideology is dead”, elections should be “a contest of managerial and technocratic leadership”.

If neoliberalism really ever did control the commanding heights of the economy, it doesn’t now. It’s in a back alley behind the dumpster.

For anyone who believes in democratic politics as a battle of ideas, Hague’s analysis is profoundly depressing. Politics as merely a debate about “competence” suits the interest of the careerist MPs on both sides of politics who don’t believe in anything in particular – the career of Scott Morrison being the best example.

The response to Truss’ mini-budget revealed in a stark, almost shocking way what has long been suspected. The ideas of free market economics – understood in broad terms as lower taxes, less regulation and a smaller state to create an environment for private enterprise and initiative to grow – are, if not quite “dead”, at the very least in retreat.

If neoliberalism really ever did control the commanding heights of the economy, it certainly doesn’t now. It’s in a back alley behind the dumpster.

In developed economies, advocates for economic freedom are back where they were in the 1970s. They are the policy dissidents of the time. What has occurred is a product of the prosperity of the past four decades that’s been taken for granted, and it has been accelerated by COVID-19.

People have become comfortable with the government paying them to stay at home. Or, to put it more precisely, people have become comfortable with future generations bearing the burden of the debt incurred to have them stay at home.

It would be foolish to claim the destruction of Truss and her mini-budget and likely electoral demolition of the Conservative Party is the best thing to happen to free market economics in decades. It could be the wake-up call economic liberals have needed.

The fact that a few thousand years of human history demonstrates there is only one path to sustainable economic prosperity is far too easily forgotten.

What has occurred in Britain over the past few weeks reveals what happens when you stop making the argument for economic freedom.