Larping, or live action role play, is a hobby in which people dress up as their preferred fantasy object – elves, goblins, Cavaliers v. Roundheads, Confederates v. Unionists, aliens, victims of a zombie apocalypse, intergalactic adventurers, und so weiter – and collectively participate in a shared imaginative world. The biggest Larps go on for days and involve thousands of people, and are famous for being intense, immersive experiences. Scandinavia is known for its own super-intense, often dark version of the genre, the feared and respected school of Nordic Larp.
Until Liz Truss, no one had ever thought to try Larping as a system of government. But it turns out that we in the UK are living inside a full-scale Thatcher Larp, whether we voted for it or not. (For the avoidance of doubt: we didn’t. Check the 2019 Conservative manifesto for proof.) This unhappy discovery was something the country, and the financial markets, learned from Kwasi Kwarteng’s ‘mini-budget’ on 23 September, the latest catastrophic fuck-up inflicted on the UK by an over-confident Etonian.
Truss’s role-playing as Mrs Thatcher has been obvious for years: her appeal to the Conservative membership, one former cabinet minister has been quoted as saying, was based on ‘looking like Mrs Thatcher and saying “freedom” a lot’. When I first read that I thought it was a joke, but the fact is that Truss, if you look at her Instagram feed, does literally dress in the same outfits and stand in the same poses as Thatcher. The pitch to a particular selectorate was clear. Outside the eighty thousand mainly old, mainly white, mainly Southern, mainly affluent, mainly male people who chose our latest prime minister, the general view was that the former Remainer, former Lib Dem, former ‘stupidest student I ever taught’ (per one of her former tutors) was playing dress-up. Nobody thought she would be foolish enough to enact a half-baked set of pseudo-Thatcherite fiscal policies just as the country was about to enter its most difficult winter in decades, facing the interlinked quadruple emergency of soaring energy prices, rising inflation, a cost of living crisis and a European war. Thatcher was an ideologue. But she was also the first world leader to talk about climate change, and she tightened the UK’s links with the European Union by signing the Maastricht treaty. Even her sworn opponents never thought she was pretending to be someone she wasn’t.
The gesture that most defined Thatcher’s economics was when she held up a basket of shopping and said: ‘Every housewife with a weekly budget to balance knows that nothing is impossible, given the will, the character and the strength of purpose.’ That statement annoys economists, since the most important tenet of macroeconomics is that ‘governments are not households’ – but it was nonetheless central to Thatcher’s ideology and electoral appeal. People understood it.
Truss and Kwarteng’s policy is the opposite of that. The market reaction told us everything we needed to know. This was despite the fact that much of Kwarteng’s plan had been signalled to markets in advance. The reason governments do that – signal things in advance – is precisely to avoid systemic shocks of the kind triggered on 23 September. For example, by far the biggest part of the new government’s fiscal policy is the energy price cap. Nobody knows how much it will cost over the next two years: the sum was initially thought likely to be in the hundreds of billions, though recent estimates are lower – perhaps a mere £85 billion. The reason nobody knows is that nobody knows what the price of gas is going to be in two years’ time. The cap involves tens of billions of pounds in spending combined with total uncertainty, but the policy was transparent and markets could make their assessments accordingly. Compared to that, the cost of abolishing the 45p tax band was a fart in the bath: £2 billion. So why the freak-out?
It was nothing to do with the political reaction in the UK. Yes, the policy caused uproar here because, in the current state of the country, giving a tax break to the highest earners, while inflicting cuts and austerity to pay for it, is cruel and stupid. But markets don’t care about that. The policy caused a run on the pound because it was uncosted. Kwarteng refused the offer of an assessment of the tax cut by the Office for Budget Responsibility, because he knew what it would say: that it would have no positive effect on growth. Bear in mind that the OBR was set up specifically to do this job: to provide independent assessments of the public finances. The uncosted new policy became, to markets, a signal that the new government is not serious and doesn’t know what it’s doing. Truss can wear as many pussy-bow blouses and sit on as many tanks as she wants, but while her policies continue to be uncosted, it’s Larp Thatcher, not the real thing. Markets don’t want a G7 economy to be led by people playing ‘let’s pretend’.
The fiasco has one aspect which is funny and two which are frightening. The funny side is the spectacle of people whose ideology is based on worship of the free market having their political prospects destroyed by that very same market. The howls of protest and conspiracy theories on their side make it even funnier. Daniel Hannan, the Brexiter former Euro MP who is so reliably wrong that the New Statesman ran a column called ‘What is Daniel Hannan demonstrably wrong about this week?’, wrote that ‘what we have seen since Friday is partly a market adjustment to the increased probability that Sir Keir Starmer will win.’ Amazing: the sterling crash was the fault of Future Labour. Crispin Odey, a hedge-fund manager who helped finance the Brexit campaign (he also happens to be Kwarteng’s former employer), blamed the multi-trillion-pound international market reaction on ‘Remainers who just decided that they hate this government’. It obviously wasn’t that: it was just the market passing judgment, as markets do. James Carville, Bill Clinton’s campaign manager, famously said that if he was reincarnated, ‘I want to come back as the bond market. You can intimidate everybody.’ He was talking about exactly what we’ve just seen.
That’s the, admittedly brief, funny side. Of the scary consequences, the first came during the market meltdown. Under normal circumstances, the fall of sterling would have limited immediate consequences for most citizens. (Big stress on ‘immediate’.) Bad news if you’re going on holiday, and likely to lead to higher interest rates in the undistant future, but not a systemic crisis. What was different this time was that thanks to innovations in the UK pension system, pension funds were exposed to derivatives risks linked to UK bond prices. That sounds dry: the reality was anything but, and British pension funds came within hours of going broke. It was a crisis in the same league as the near-death experiences of October 2008, and the only thing that prevented full-scale disaster was the Bank of England saying it would spend as much as £65 billion buying UK bonds. That thing when you nearly step into the street without thinking, and somebody pulls you back, and a lorry zooms past, and you feel suddenly frightened in retrospect because you nearly got run over? The UK has just been through that.
The second scary thing will play out over a longer term. Before Kwasidämmerung, the UK’s monetary policy was based on the gradual unwinding of quantitative easing. During QE, the government printed electronic money and used it to buy back its own bonds – that is, its own debt. That made the price of bonds go up, which in turn made the yield on bonds – the interest rate, in effect – go down. This policy had upsides and downsides. One principal criticism of QE has always been that it would be difficult to undo. The bank’s plan was – officially, still is – to divest itself of £80 billion of QE-bought bonds a year. But now the bank is overwhelmingly likely to raise interest rates. A crash in the currency is a sign that people don’t want to invest in your country. Unfortunately, the government needs to borrow money to pay its bills. To get doubters to lend you money, you have to pay them more – and when you raise interest rates that’s effectively what you’re doing. It’s the opposite of buying your own debt; the opposite of QE, which makes interest rates go down. This means that the UK is stamping with full force on both the accelerator and the brake. In the words of the International Monetary Fund, ‘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.’ The IMF, which routinely bullies and hectors emerging economies, never, ever, talks like that to rich countries. In plain English, what it’s saying is ‘Don’t be so fucking stupid.’
It’s not clear how the Larpers will extricate themselves from this predicament. The likeliest route involves spending cuts. This was a deliberate choice on the part of the Truss government. The mini-budget was, among other things, supposed to be a device for engineering huge cuts in state spending without a mandate. The idea was: here are the tax cuts! Next week, we’ll tell you about the spending cuts which will pay for them! And we promise they won’t affect Tory members, only the poor!
That was before the interest rate rises which are now likely, and which will affect everyone. By and large, economists never agree. In the case of the UK, about the only thing they agree on is that the number one obstacle to economic growth is the restrictive planning system. The next two biggest obstacles are constraints on immigration and trade barriers with the EU. If the Larpers were serious about growth, they would accompany their tax cuts for the rich with policies that actually affect growth: reform of the planning system to build more homes, increased immigration and a trade deal with the EU. That deal would inevitably be on terms set in the main by the EU. This process would involve Truss turning to the people who elected her and telling them three things they don’t want to hear: that new homes have to be built near them, whether they like it or not; that immigration needs to increase; and that Brexit was a mistake. This will not happen. The real ‘anti-growth coalition’ – Truss’s target in her excruciating conference speech – are the very people who chose her as leader. Instead of genuine policies for growth we will get more Thatcher Larping, more stunts and gestures. And winter is coming.
Under other circumstances, it would be baffling for Truss to think she has a mandate for her policies, which are close to the opposite of those spelled out in the 2019 Conservative manifesto – the manifesto that won them an eighty-seat majority, with lavish public spending promises about ‘Our Priorities: Strengthening our NHS, Investing in schools, A strong economy, Safer streets’. But the fact is that the influence of Boris Johnson, even before and after he was leader, has wrecked the Tory Party as a serious instrument of government. Under him, it became a condition of Parliamentary Membership that MPs pretend to believe a falsehood: that Brexit does not involve serious costs and trade-offs, losses as well as gains. In their refusal to endorse that falsehood, most of the sensible Tories were driven out of the party. The ensuing talent crisis led to the selection of Truss. The succession of May, Johnson and Truss to the prime ministership resembles one of those tragic but horribly memorable failed suicide attempts, in which the sufferer shoots themself in the head but fails to die. The Truss-Kwarteng mini-budget may be remembered as the day the Tory Party finally got the job done.
7 October
