Sunday, 30 October 2022 — Peoples Democracy

Liz Truss Official Portrait (Photo: Number 10 / Flickr)

By Prabhat Patnaik

The most intriguing question with regard to Liz Truss’ resignation as the prime minister of Britain after a mere 44 days in office is this: what is it about her economic programme that the “market” (read “finance capital”) found unpalatable? At its core after all was tax-cuts for the rich, which the “market” should have lapped up. True, the tax-cuts were to be financed through a fiscal deficit which the “market” generally does not like; but since the fiscal deficit was meant to finance transfers to the rich, and not any direct stimulation of aggregate demand by the State, there should have been little objection from the “market”. Some have suggested that since the tax-cuts were “unfunded”, that is, financed by a fiscal deficit entailing a sale of government bonds, the proposal introduced uncertainty about the future course of the bond rate which made “investors” dump government securities, sharply raising the bond rate and creating panic in the “market”. But that is precisely the question which needs to be answered: even before any actual sale of government securities for financing a fiscal deficit had occurred, why did the “market” panic? And if it expected higher rates then that should have led to a strengthening of the pound-sterling with financial inflows occurring into Britain, rather than a collapse of the pound-sterling as we actually saw.

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