On one level, the resignation of Prime Minister Liz Truss is a peculiar British story, featuring a leader who climbed to power on the votes of just 81,326 party members and then governed with the subtlety of a stoned teenager: a sort of anti-Solomon. Yet on another level, Truss’s implosion after six tumultuous weeks raises an almost universal question. When economics goes badly, how does politics react?
The laboratory of Europe has already suggested some troubling answers. Just as the Greek debt crisis ushered in the left-populist Syriza government in 2015, so the food- and energy-price shocks from Ukraine have generated fresh political upsets.
Italy recently defenestrated a distinguished centrist, the economist-statesman Mario Draghi, rallying behind a trio of far-right populist parties in its September election. “The energy crisis must not produce a return of populism,” Draghi had declared at the Group of Seven summit in June. Fat chance.
Sweden, struggling with the backwash from a surge of immigration as well as tough economic prospects, has dispensed with its center-left government. The new coalition is in hock to the anti-immigrant Sweden Democrats, who won a fifth of the votes in September’s election despite their neo-Nazi roots.
Seen in this context, Truss’s brief premiership is part of a wider trend. She campaigned in the summer as the radical challenger to Rishi Sunak, the technocratic finance minister, proclaiming that deep-state bureaucrats and status quo economists were holding back Britain. The sales pitch was that she would be another Margaret Thatcher. Had she channeled her radicalism into pro-growth deregulation, she might just have delivered.
But confronted with the pressures of the cost-of-living crisis, Truss embraced a different kind of radicalism in office: less Thatcher than Juan Perón. First came unaffordable fuel subsidies; then came unjustifiable tax cuts; then came a financial-market backlash. The would-be Iron Lady ended up as Lettuce Liz, with the press comparing her political longevity to the shelf life of green veg.
This was, to put it mildly, a surprising turn. Fire-breathing populists often cool it when they assume the responsibilities of office. Leaders who rise to power via the establishment party and then charge off the precipice are a less familiar breed. But what comes next might be equally surprising. Economic adversity, which pushed Truss in the wrong direction, might force her successor to chart a different course.
In a bid to save her premiership, Truss had fired her swashbuckling finance minister, Kwasi Kwarteng, last week and replaced him with the even-keeled Jeremy Hunt. Where Kwarteng had sacked the top technocrat at the Treasury, Hunt lost no time recruiting a respected BlackRock economist and former Treasury insider as his guide. Where Kwarteng had announced tax cuts, and then wildly promised more of them, Hunt canceled them with algorithmic calm. A return to a Kwarteng-type program — #kamikwaze economics, as the Twitterati call it — is off the table.
The grown-ups at the Bank of England are also walking tall. Remarkably, they have managed to stabilize the markets without harming their inflation-fighting credibility: They propped up long-term government bond prices, which meant cutting long-term interest rates, while also signaling continued hikes in the short-term interest rate to get inflation down. By keeping the bond intervention brief, they executed this accelerate-brake double act without blowing the engine. Other central bankers, who may be forced into similar maneuvers during the looming global economic turbulence, must feel relieved that this worked.
The grown-ups still face challenges on Britain’s political front. From their redoubts at the central bank and Treasury, they gaze out at a still-ruling Conservative Party in which flat-earthers abound. Suella Braverman, a publicity hound and anti-immigration culture warrior who held a senior post in the Truss cabinet, speaks for the millions of Conservative voters who think Brexit was not radical enough.
Yet even in the political arena, what’s remarkable is how none of Truss’s potential successors appear tempted to follow her example. The betting market fancies Sunak as the clear favorite to become the next prime minister; during his last run, he was bravely explicit about the need for budgetary prudence. The next most likely successor is House of Commons leader Penny Mordaunt, a largely policy-free navy reservist and former defense minister; to the extent that she has held forth on economic policy, she has been vaguely middle of the road.
There is even some talk of a Boris Johnson comeback, though Johnson himself has yet to comment from his Caribbean vacation. Johnson, to be sure, is not Mr. Responsible. But these days in British politics, everything is relative. Whatever norms he flouted, and whatever the long-term costs of Brexit, Johnson didn’t damage the economy quite as fast as Truss.
