Following the brutal market backlash against her plans for unfunded tax cuts and tens of billions of pounds in additional spending, Liz Truss resigned as British prime minister, succeeded by her Tory rival, Rishi Sunak. The international media is now struggling to make sense of it all, but the task may be impossible. I have been working at it for over a decade and remain, in some ways, perplexed.
In 2007, I wanted to learn more about Friedrich von Hayek and ‘Austrian economics’, the apparent inspiration for Truss’s libertarian philosophy, and so attended a two-week summer school program organized by the Foundation for Economic Education in the United States. Founded in the mid-1940s to incubate free-market ideology, FEE emerged as one of America’s first and most influential right-wing think tanks. All the “greats” of libertarianism – including its high priest, Ludwig von Mises, the journalist Henry Hazlitt, and Hayek himself – had convened under its auspices.
In temporarily joining the FEE ranks at their previous headquarters in Irvington-on-Hudson, in upstate New York, I was immediately struck by how different the organization felt compared to other think tanks and academic forums I had encountered. One minute, we were all innocently agreeing that individual liberty is a valuable principle; the next minute, we found ourselves on a philosophical rollercoaster ride, with the concept of ‘self-ownership’ hurtling us toward fantastical places.
I well remember the key points that were drilled into us. First, liberty is both the necessary and the sufficient condition for the maintenance of human dignity. Second, freedom amounts to the protection of individual liberty from state encroachment. Third, governments exist in opposition to their people.
The final, and central, point was that markets — propped up exclusively by private property (an extension of ‘self-ownership’) and contracts (the basis for voluntary exchange) — are the only just means of ordering society. Thus, if you believe in liberty, you must oppose government (and any state-sponsored social projects, especially welfare programs) as a matter of justice.
During my first week at FEE, I was convinced that I would succeed in setting up a Socratic dialogue: “Isn’t inheritance anti-meritocratic?” I asked. “What if we defined freedom positively (as ‘freedom to’ rather than ‘freedom from’)?” “Are market failures worse than the state failures the libertarian perspective emphasizes?”
No one else chimed in. They nodded in glazed agreement with the instructors. By the second week, I had been silenced, but I could answer my questions in my own head: If you valued individual liberty and you adopted their definition of it, their conclusions were indeed inescapable, by dint of being tautologous. Given the slippery slope of libertarian logic, I was alarmed to learn that FEE also held ‘summer camps’ for school children. FEE was not a forum for critical engagement; it was an indoctrination program, an intellectual cult.
After two weeks, I was relieved that the experience was behind me. When I recounted it to a friend, he reassured me that it was all a thought experiment. “It can’t be proved or disproved because no country would ever try it.” I was mollified, because he was right, empirically. While full-bore libertarianism has long had a presence in US politics, it has always been the bridesmaid.
Imagine my surprise, then, to see a decidedly libertarian political doctrine pursued in the United Kingdom, the country I have long called home. Truss and her (first) chancellor of the Exchequer, Kwasi Kwarteng, will now be remembered primarily for their undying faith in the power of tax cuts, including on the country’s highest earners and corporations, to spur growth. Even though the country is experiencing double-digit inflation and a massive cost-of-living crisis, they apparently did not foresee any problem in announcing £45 billion ($52 billion) in unfunded tax breaks.
Truss’s ‘mini-budget’, unveiled on 23 September, was as much a religious document as a list of policy proposals. It was based on faith, and it read like something handed down from the libertarian high priesthood — a text belonging to the same tradition as philosopher Robert Nozick, who equated taxation with the evils of slavery.
Truss and Kwarteng offered a preview of their agenda in the 2012 book Britannia Unchained, which was strongly influenced by Hayekian think tanks like the Institute for Economic Affairs (the British counterpart to FEE). The book, co-authored with three other Tory politicians (Priti Patel, Dominic Raab, and Chris Skidmore), bemoaned Britain’s supposedly ‘bloated state, high taxes, and excessive regulation’. These were hallmarks of the ‘nanny state’ that had been coddling ‘idle’ Britons and allowing them to work too little and retire too early.
Likewise, the European Union was characterized as a supernanny that was smothering British competitiveness. The book warned that Britain was becoming a second-rate power in Europe and a third-rate power in the world. Four years later, those arguments became the driving force behind Brexit.
But Truss and Kwarteng’s love letter to the market went unrequited. Their agenda triggered a run on the pound, which hit its lowest level ever against the dollar. Projected mortgage payments rose sharply, and British bonds dropped in value, forcing the Bank of England to step in as market maker of last resort. In a rare rebuke of a major advanced economy, the International Monetary Fund weighed in to voice concerns about the UK government’s plans. Truss fired Kwarteng and signaled that she would abandon some of the tax cuts.
Then, in one of the most dramatic U-turns in modern economic history, Kwarteng’s replacement, Jeremy Hunt, announced a near-complete policy reversal. Trussonomics — one of the most ambitious attempts at libertarian economic policymaking in living memory — had failed to last a month. It turns out that social order requires government after all.
It was a costly experiment. Truss’s policy misadventure has addressed all the questions that my time in Irvington-on-Hudson left unanswered: when put into practice, libertarian philosophy does indeed wilt faster than a head of lettuce.
Associate Professor of Empirical Legal Studies at the University of Cambridge.
Copyright: Project Syndicate, 2022.