Dr Boboc and Kristian Niemietz dig into the UK’s deteriorating fiscal position, with around 8% of all public spending now going on debt interest alone. They assess why bond markets are nervous about whoever ends up leading the Government, arguing that the real problem is not the chaos itself but the absence of any credible plan on spending, growth, or taxation. The King’s Speech is assessed in detail, including the Government’s “Regulating for Growth” bill, the nationalisation of British Steel, and what Kristian describes as Chris Snowdon’s “capitalist command economy” thesis: a state that does not want to own industry directly but increasingly dictates what private companies produce and how.

The conversation closes with a look at a Labour backbench growth paper that Kristian describes as the closest thing to a centre-left supply-side agenda he has read in the British context. He and Dr Boboc explore why rationing key inputs like land, energy and childcare drives up costs and then triggers expensive spending programmes to compensate, and what genuine fiscal consolidation through growth might actually look like.

The Institute of Economic Affairs is a registered educational charity. It does not endorse or give support for any political party in the UK or elsewhere. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The views represented here are those of the speakers alone, not those of the Institute, its Managing Trustees, Academic Advisory Council members or senior staff.

I am a natural fanatic. My mind always tells me that if something is true, it must be true to its maximum logical extent. I can sometimes hold in my head the idea that there are golden means: empirical cases where it happens that some arbitrary point upon a line is the optimal value. But my heart tells me that this sort of thing is crazy madness. If there are property rights, they must be absolute property rights or the argument for them must not be valid at all.

There are no records of exactly how I slipped into radical, hardcore libertarianism, but my hazy memories tell me that the Mises.org website was to blame. With a bit of work digging through their old forums, one could find my old profile, and all my doctrinaire arguments.

I took to libertarianism like a fish to water. It filled a hole that had always been missing in my life: the complete answer to all questions. People who knew me from that time could no doubt relate my diatribes against intellectual property (for being inconsistent with other property rights), the police, governments in general, and taxation, and my generally disagreeable, debate-happy demeanour. I read Robert Nozick’s Anarchy State and Utopia at university, and loved it, but by that point I was, if anything, critical of the book because it did not advocate the end of all governments.

I had a lot of what I would now call crony beliefs: views I believed in because they were necessary to support my deeper commitments. It caused me great consternation – even annoyance and anger – to be presented with situations like ‘is it OK to break into a hut to avoid dying in a blizzard’, presumably because of the underlying cognitive dissonance.

Over time, I came to identify as a ‘bleeding-heart libertarian’, after the blog of the same name, which I read a lot of in the early 2010s. (A quick Google informs me that it closed down in 2020.) If you asked me, I would tell you that I no longer believed in the ‘natural rights’ account of libertarianism – instead, I would say that I believed in utilitarianism or consequentialism, which just happened to be consistent with libertarianism.

This was a lie and in my heart I was still a committed libertarian. I knew in my heart it was completely true in every respect, as you could easily tell by seeing my irritation and instinctive need to argue every point that I perceived to be a threat to the status of libertarianism as an idea.

Darwin versus Friedman

Over time I developed. But as with many intellectual developments, there was no ‘aha’ moment or Damascene conversion. Instead, I continued to think of myself in the same way until I suddenly realised that I no longer believed in libertarianism any more. I remained a think tanker who advocated for neoliberal or libertarian policy solutions, but I was easily able to hold thoughts like ‘it may be optimal to limit property rights here’, or ‘this government scientific project did pretty well’ in my head without distress or cognitive dissonance. My fanatical obsessions had moved elsewhere.

Freed from the need to find apologia for libertarianism, or proselytise, I substituted having one big model of everything that answers every question with a panoply of smaller models. After this point, I have never identified as subscribing to any sort of ideology, but people usually call me a neoliberal. Occasionally I think that maybe I am a sort of conservative.

The best speech I can think of, by anyone, is Paul Krugman’s What Economists Can Learn From Evolutionary Theorists, which explains that evolution is modelled very similarly to the supposedly unrealistic ‘homo economicus’ type models that economists use. Evolutionary dynamics tend to produce maximising outcomes (or to go in that direction). This is part of an intellectual movement that is very important to me. The traditional approach is to see the market as mainly being about either incentives – the fact that you get more stuff if you do what society wants – or information – the fact that scarce things and high-demand things go up in price, showing that society wants them. Prices are indeed information signals ‘wrapped in incentives’. But I think that the best way to see the market is in terms of evolutionary dynamics.

Ronald Coase explains in The Nature of the Firm that capitalists and companies are a bit like central planners. A division leader in a company doesn’t bid for the time of employees against other division leaders. Companies rarely have internal markets or internal prices at all, meaning that most economic activity is not regulated by markets or prices, but command and control economies, where companies buy lumps of labour by the week, month, or year, and make theory-based decisions about how to deploy it.

So markets and prices, and the incentives and information they give us, can’t really be what’s important about capitalism. Instead, the importance of capitalism is that successful central planners (like Jeff Bezos and Elon Musk) get more and more capital to plan, making the economy more and more well planned. Unsuccessful ones get given less and less of the economy to plan. Capitalism is good because of evolutionary dynamics, with entrepreneurs and business owners following rules of thumb and theories about the world, often with very long feedback loops.

This evolutionary view also affects how I think about efficiency (I gather this is the view of Israel Kirzner and Joseph Schumpeter as well, but I haven’t read them!). Many people worry a lot about allocative efficiency in the current timeslice: making sure the right people are using each bit of capital, and the people who enjoy each good or asset most are getting to do so. Allocative efficiency is hugely important. But in my view, dynamic efficiency is much more important. Growth, which is the most important feature of civilisation, is driven by innovation and capital accumulation, not by sweating all of our existing assets more efficiently. I recommend reading The Quincunx by Charles Palliser, which is a novel, if you want a reminder of the crushing, grinding life that nearly everyone experienced before modern economic growth1.

Though the industrial revolution meant rapid overall economic growth, it led to barely any increase in living standards in Britain until after 1850, when fertility began to decline. I reject the popular view that Malthusianism was conquered by the industrial revolution alone: my view is that it was partly down to fertility control. Sufficiently many people can always drive the marginal product of labour, and hence wages, down to zero. This is the insight one gets from Meditations on Moloch, by Scott Alexander.

When I was younger I was very intrigued by the ‘neoreactionary’ anti-democratic ideas created by Konkvistador and Mencius Moldbug. These authors dazzled me with esoteric ideas: the revisionist history of Italian wealth differences; the idea that politics always proceeds in a leftwards direction. I can’t recommend reading any of Moldbug’s work, as it is extremely wordy, although I do find it a pleasure myself, especially An Open Letter to an Open-Minded Progressive. There are certain features of it I find emotionally appealing, like pronomianism – describing everything accurately in terms of how it is, rather than how it is supposed to be – but overall I think the view is wrong.

An even better essay that I do recommend one reads is Reactionary Philosophy in an Enormous Planet-sized Nutshell which is like the ‘steelman’ of these views, imagining a version of them that is more compelling than the actual version is. It actually argues for something not far off conservatism: we have a bunch of institutions that work, and we are making them worse by messing with them. ‘If you are in a hole, stop digging’. I struggle to believe most of the more lurid claims of the ideology – like the idea that monarchy works really well, or that socially conservative restrictions on behaviour exist for hidden reasons – but I do think it was a particularly interesting and exciting intellectual movement while it was happening. A more compelling version of this worldview is given by Starship Troopers (strictly the book, and not the film) by Robert Heinlein.

A significant evolution in my thinking has been coming round to the glory of democracy. The work of Dan Bogart, especially Did the Glorious Revolution contribute to the transport revolution? Evidence from investment in roads and rivers, but really his entire oeuvre, explains how legal innovations were crucial to the industrial revolution. Before the late 1600s British property rights were incredibly complicated and hard to use. Entails prevented heirs from splitting or selling up parts of their land, meaning they could not fund improvements like draining swamps. Collective ‘commons’ meant that farmers had inefficiently distributed land and that landowners overgrazed. The flexible power of Britain’s democratic institutions allowed Britain to continually reorganise these messy rights, setting in place the conditions necessary for the industrial revolution. (There really is so much we can learn from looking at the improvement into British rivers, canals, railways, turnpike roads, and land during the 1600s-1800s.)

This industrial revolution started as an energy revolution, explains Anton Howes in Lessons from the age of coal. One of Anton’s intellectual projects has been to show how Britain was uniquely unsuited to the industrial revolution in 1550, but by 1650 it felt inevitable that it would happen in Britain, which was in some ways already Europe’s leading country. Another of his projects is showing how this came from an ideology of innovation, but this ideology of innovation was not spontaneous but actively pursued and created by British elites and even government, creating institutions and organisations to spread and popularise it. They created common knowledge that innovation was high status in the eyes of society.

Fixing social norms

Common knowledge is important to a swathe of things. Isn’t it weird how little information adverts tend to contain about the products they advertise? Ads Don’t Work That Way by Kevin Simler explains how adverts are not usually meant to be persuasive, but to create common knowledge of the association between various products and social signifiers. Common knowledge means things that you know, and you are confident that everyone else knows too. When you know that everyone knows that, say, Lynx deodorant is associated with masculinity, then you can show everyone that you identify as being a man’s man by buying and using those products.

The Nerd as the Norm by John Nerst reframes reality by reconsidering autism as a curve, rather than a binary, and mapping out the opposite end of the bell curve from Asperger’s and nerdery, a kind of person he calls a ‘wamb’, interested in people over things and ideas, concerned for social harmony over correctness, and so on. The wamb/autist spectrum is a key way I think about people’s socio-personality traits.

When it comes to traits, I have read an enormous amount of behavioural genetics research, and it seems to me that there is overwhelming evidence that most traits are about fifty-fifty nature and nurture, at least in Western societies where most people have a decent chance in life. I used to think that the fact this is rarely discussed in modern Western societies signalled a deep failure at the centre of society, but I now realise that most people are cognisant of these genetic facts, they just prefer not to talk about them because it is implicitly rude and upsetting. I think society has made the right choice. (There are a great many good articles on this topic you might read, and I don’t have a favourite one.)

Instead, I think that game theory is much more informative. We are born into a society, and on our own it is nearly impossible to change the norms that exist, as they are effectively games, with rewards and payouts for winning. In the UK, ‘Cheems Mindset’ (as coined by Jeremy Driver) is one way that you ‘win’. The cheemster gives status based on coming up with reasons why something couldn’t work, rather than for coming up with ways of overcoming those obstacles.

Many social norms are created arbitrarily, but nevertheless matter and can’t or shouldn’t be changed. Many other social norms are deeply arbitrary, and can be changed with effort, as shown by Ending Footbinding and Infibulation: A Convention Account by Gerry Mackie, which essentially gives the economics of brutal practices and an idea of how to fix them. It goes very well with The Teratogenic Grid by Holt Parker, which explains how different Roman conceptions of sexuality were to our own, and yet how Romans seemed to fit into them naturally.

If I am right that social norms can be arbitrary, meaning that they aren’t the exact way they are for a strong reason, but due to randomness or happenstance, then that is quite worrying. It means that rather than being selected through some process because they make society work particularly well, they may be leading us astray, but it takes a long time for us to see. There is no ‘control group for society’. For example, while it’s possible that artificial intelligence will make this a moot point, because it means we can increase the effective population (albeit of AI agents rather than real humans) as much as we like, our increasingly universal international culture seems to be producing ever-declining birth rates. Without some very different cultures and civilisations, I worry that we may simply dwindle to nonexistence (as best explained by Robin Hanson’s Beware Cultural Drift). But mostly I am quite hopeful that feedback mechanisms will kick in to try and fix things.

How the War on Drunk Driving Was Won, by Nick Cowen, is a ‘how to’ guide for changing antisocial behaviours to become prosocial ones, including not just drunk driving but even murder, which was vastly higher in the past than today.

Capitalism, free markets, and liberalism are substantially successful because they are a way of channeling competitive behaviours into prosocial outcomes, rather than negative sum outcomes, like footbinding, infibulation, or virtue or vice signalling. In a capitalist culture, which respects success and wealth, people can indulge their natural desire for social competition and generating status by doing things – jobs, or starting companies – that benefit lots of other people. Even spending money on luxurious country houses often leaves behind valuable culture for society. Whereas other social institutions for competition (for status and mates), like footbinding and infibulation seem to have been, leave us worse off than if no one competed at all. I think Ryan Murphy’s ASI paper The New Aristocrats is one of the best economic models of taste signalling.

I mentioned Ronald Coase above. Ronald Coase’s other article The Problem of Social Cost has been nearly as influential on me. (Today, I would skip this article and instead read The Importance of Alienability and Democracy is the Solution to Vetocracy by Sam Bowman.) Circumstances in society are generally Pareto efficient, because otherwise people would spend effort moving them toward a more efficient state, in exchange for a share of the efficiency gains. (But Pareto efficiency is far from enough!)

Fixing policy

Liberal advocates have a structural advantage over illiberal opponents because we offer efficiency gains. As long as we can come up with ways to turn those efficiency gains into better lives for a broad range of people, we should win nearly every political battle. There have been periods where this has happened, such as under Thatcherism. My view is that this is hard work, and most liberals prefer to own their enemies online in order to generate ingroup status instead.

In that spirit, I have spent a lot of the last five years thinking about Coasean approaches to housing reform. The NIMBY Problem by David Foster and Joseph Warren is one of the best encapsulations of why stuff doesn’t get built, and the sort of thing that could change that. Alex Morton’s Why Aren’t We Building Enough Attractive Homes was also a real eye opener when I read it, as was the work of John Myers.

I turned to Coasean approaches to housing reform as I steadily became more appreciative of the very real concerns of the so-called NIMBYs. Development really does often have large externalities, and the externalities of any given development usually fall heavily on one narrow group of people.

Donald Shoup’s idea of ‘Graduated Density Zoning’ – returning to the old system where landowners could build as much as they liked below ‘light planes’ – is a genius way to maximise the amount of development you allow subject to a constraint around light and congestion externalities. It mimics the private planning of the past, beautifully explained in John Kroencke’s book Private Planning and the Great Estates. (See also Samuel Hughes’s article The Great Downzoning for further insights on the benefits of planning.)

Private planning now forms a particularly important place in my thinking. Low-state-capacity cities in developing countries today have almost no limits on development – nor did medieval cities in the West. These cities were afflicted by chronic congestion, and therefore overcrowding, disease, and more. Landowners realised they could create more value by (privately) planning new neighbourhoods, such as Belgravia or Pimlico, rather than just selling them off. Even if they did want to sell leaseholds off, as in Georgian Bath or Edinburgh New Town, they required developers to keep to certain rules, like not encroaching on the roadway, facing their buildings in stone, and building to planned design patterns. The market chose planning. British city planning today leaves a lot to be desired, but the problem with it is not that it is planning.

Design is the ultimate externality. If you have a beautiful house, you will rarely see it. But if you live on a street of beautiful homes, you will enjoy the view every day. When it comes to cities, one of my key concerns is housing supply: just building enough homes in the right places in total. But another concern we might have is creating beautiful cities that we enjoy living in. Sometimes it feels like we live in the ruins of an older, greater civilisation (though in practically every other respect, we are vastly superior to our ancestors). The best things ever written on this topic are by Samuel Hughes. I have re-read each of his essays – In Praise of Pastiche, Against the Survival of the Prettiest, Making Architecture Easy, and The Beauty of Concrete – literally dozens of times.

Life begins at 35

Overall, my views have tended in some ways to moderate during my twenties and thirties. I have come to see that many of the hard-line distinctions I drew between things are not as tenable as I once thought they were, and at the same time that drawing hard-line distinctions between things is not as important as I thought it was.

For example, I now think that local governments have at many times and places functioned like ‘spatial companies’ – a kind of land-based company acting over one location – more like a private body than what we think of as the ‘state’. Local governments function like this in some places today, and in other places are deeply dysfunctional, corrupt, moribund, or sclerotic. State science funders like Darpa are more like private funders like Bell Labs than they are like the National Institutes of Health, or UK Research and Innovation. The usual distinctions – incentives, information, and evolutionary dynamics – are almost always the reason why, but this is true both for ‘state’ organisations and private ones.

In fact, I see myself as having come to apply these ideas – incentives, information, and evolution – to a much broader range of things. For example, it once seemed to me that the normal kind of private property rights were the only type of property, and everything else was invalid, or even an infringement of real rights. Now it seems to me that the reason behind property rights is protecting the incentive to accumulate: to do things that you will later benefit from. It seems to me that this principle applies to some extent to nations, cultures, institutions, and many other things as well, and that the entryism of illegal immigration is not so different from ‘woke’ entryism into state institutions, or other kinds of entryism. Similarly, I now think that sharing the benefits of growth with a broad swathe of society, through kinds of re- or pre-distribution are not so much an infringement of rights as a way to guarantee they continue to exist into the future.

As I grow older I gain more and more respect for the basic principles of our liberal society, and the basic wisdom of its institutions – and more keen to protect the bits of them that still make us successful.

Chris and Kristian work through the evidence: boiler companies fined for not selling enough heat pumps, car manufacturers penalised for selling too many petrol vehicles, supermarkets being required to track and reduce the calories their customers buy, Gatwick Airport granted a new runway only on condition it controls how its passengers travel. They trace the roots of this model through price controls, rent regulation, minimum wage creep, and the Government’s habit of outsourcing its policy goals to business while escaping the blame when things go wrong.

The conversation closes with the question of whether this model is stable. Drawing on Mises’s concept of interventionism as an inherently unstable system, Kristian asks whether the capitalist command economy simply creates the conditions for a more conventional socialist government — or something else entirely. Chris argues the real problem is that Britain lacks even a word for what it has become, and that naming it is the first step to challenging it.

The Institute of Economic Affairs is a registered educational charity. It does not endorse or give support for any political party in the UK or elsewhere. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The views represented here are those of the speakers alone, not those of the Institute, its Managing Trustees, Academic Advisory Council members or senior staff.

So then, how many pairs of shoes go into a birthday cake? What about packs of Marlboros?

Most people never have to think about baking in these terms. But for many grandmothers (mine included) the process of making a dessert started long before she cracked an egg. It began with questions about which items in her household were precious enough to barter for ingredients.

In Romania, back in its Eastern Bloc days, money technically existed. It was called the leu, the same name it bears today. The central bank printed it. You could hold it, count it and occasionally even exchange it for vegetables at a state-owned shop. But in any meaningful sense, the leu wasn’t ‘money.’

The state used it as a unit of account to track quotas, and officials stamped it onto rationed goods, displaying the state-mandated prices. However, money failed as a store of value, because fixed prices were so low, no one was ever ‘cash-poor’ and chronic shortages left people without goods and services to spend said money on. Saving physical currency was also a futile exercise. The real economy, the one that actually brought butter to the birthday cakes, ran on bartering.

So how is a grandmother to acquire ingredients for a birthday cake?

The queue and the shadow economy

To make things even more complicated, Romania ran a system of aggressive food rationing. Under a program euphemistically titled ‘Rational Eating,’ certain basic foods were only made available to the population in fixed monthly allowances. For example, an individual was usually entitled to 300 grams of bread a day and a single litre of cooking oil a month. ‘Hoarding’ more than a month’s supply was a crime punishable by prison.

The shops were mostly empty, and empty by design. Central planners set output targets that ignored public demand, and the regime exported the best of the little that was produced to extract hard foreign currency.

Because official prices were fixed, they stopped carrying information about scarcity. A kilogram of meat might cost a few lei, but that price was irrelevant if the meat didn’t exist. Real price discovery happened on the black market, where foreign cigarettes (especially Kent and Marlboro) became a parallel currency. In 1987, two pounds of beef could cost abouy four packs of Kents. Cigarettes worked because they were portable, divisible and almost universally desired. But even then, much of the informal economy operated through pure barter.

From shoes to butter

If your grandmother needed to make a cake, she couldn’t buy any butter at the shop, as butter was one of the strictly rationed ‘basic goods.’ An individual was allocated approximately 100g of butter per month. No more, no less. If your grandparents lived alone (which they often did), then 200 grams per month was scarcely enough to make a birthday cake, when you took into account that butter cannot be indefinitely preserved (it’s hard to save monthly rations over the course of multiple months) and butter comes with competing uses (cakes are not the only thing butter is useful for).

The next best thing is buying part of some neighbours’ rations until she could get the quantity she needed. But she couldn’t just offer money to a neighbour, because the neighbour didn’t need money. What followed was a chain of exchanges that required more effort than any modern consumer could imagine.

In this one particular instance, she started by swapping a pair of shoes for cigarettes. Then, she swapped the cigarettes for tergal, a synthetic fabric used for making dresses (it was the fashion at the time). The tergal was then traded for rapeseed oil. Finally, the rapeseed oil was exchanged for butter, not because the butter-owner wanted to grill, but because they needed the oil as a second-rate lubricant in their metal workshop.

Four transactions, five different goods and a lifetime of social networking, all for a single cake.

Finding someone with the right goods to barter is what economists call the ‘double coincidence of wants.’ Coined by William Stanley Jevons in 1875, it stipulates that for an exchange to happen, two people must want exactly what the other has, at the exact same time, in the exact quantity they are prepared to offer.

A double coincidence is a statistical miracle. My grandmother didn’t find one person who wanted shoes and had butter. That person did not exist in her village. That person may not have existed in the entire country, and even if they did finding them would be prohibitively expensive. Instead, she had to find a sequence of smaller coincidences, each a link in a fragile chain. Each step required its own negotiation, its own expenditure of time and the risk that the whole thing would collapse before she reached the butter. After all, the one thing worse than being unable to swap shoes for butter, is giving away good shoes and remaining stuck with bottles of rapeseed oil you never plan to use for cooking.

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The numbers add up (to a lot)

The double coincidence problem is both annoying and mathematically intractable. As an economy grows, the number of markets needed to facilitate barter explodes.

In this example with five goods (shoes, cigarettes, tergal, rapeseed oil and butter), you need ten distinct markets, one for each pair of goods: shoes for cigarettes, cigarettes for tergal, and so on. With 10 goods, you need 45 separate markets. With 100, you need 4,950. With a million, you need close to 500 billion. In a modern economy with millions of goods and services, writing out all the zeros gets a bit scary.

What money does is make things simple. You only need one market for every good (the good in exchange money). But even these numbers understate the difficulty. Computer scientists have shown that finding a chain of exchanges to clear a barter market is NP-hard (‘non-deterministic polynomial time hard’). In layman’s terms, it is almost certainly unsolvable in a reasonable time. A barter economy involving just a few hundred people and a handful of goods would overwhelm the world’s most powerful supercomputers. The time required to calculate an optimal outcome would exceed the age of the universe, even on hardware far beyond anything we can build at this current point in time.

Commodifying human relationships

The mathematics only confirms what those who lived through it knew in their bones. Barter is ruinously expensive. And it comes with a cost that isn’t measured in time or shoes but in the erosion of human relationships.

A monetary economy, for all its perceived ‘coldness,’ actually protects our social lives. When you buy bread from a baker, you pay and leave. You don’t need to know anything about the baker’s personal circumstances, their family’s needs or their list of suppliers. Money is ‘crystallized trust.’ It allows strangers to trade, which in turn allows friends to just be friends, without the need for constant, transactional calculation.

Barter makes every human interaction turn into a potential deal. Most Romanians before 1989 maintained mental ledgers of everyone they knew: who had access to the shoe factory, whose brother-in-law could procure export-only goods, who owed someone else a favour, who smoked the most/the least, etc.

In this world, social networks aren’t organic communities. Every relationship carries questions. What can this person provide? Is this gift a gesture of love, or a strategic deposit for a future trade? Trust becomes deeply personal and very fragile. If a friend fails to deliver the cigarettes they promised for your shoes, you have no recourse. No contract, no court, no receipt. You simply lose the shoes and perhaps the friendship, too.

We can bake the cake and eat it too

My grandmother baked many cakes for her daughters over the years. But she paid for those ingredients many times over. Unlike her counterparts on the other side of the Iron Curtain, her ordinary domestic life required the skills of a commodities trader and drained her time in ways that are hard to imagine or forgive.

We are lucky enough to live in a world where we never have to calculate the exchange rate between shoes and butter. And no one should ever have to.

Money is what separates community from society. It fully exhausts transactions and it fully depersonalises them. Money gives us the freedom to pay and walk out of a shop without owing anything else to anyone. It allows us to build human relationships based on shared purposes rather than calculated exchanges.

• Your questions answered

• What campaigners get wrong about wealth taxes

• Professor Juan Castañeda appointed to IEA board of trustees

The recent IEA report ‘Attitudes to Economic Growth’ showed that most people are simultaneously too negative and too positive about the state of Britain.

On the one hand, two thirds of respondents rate the state of the economy as ‘poor’, and two thirds think things are getting even worse. When asked what they thought the main strengths of the British economy were, the single most common response is that it does not have any.

At the same time, though, respondents vastly overstate how rich Britain is compared to other economies. Only 43% of respondents realise that Britain is not as rich as Switzerland. Another 16% think the two economies are about on a par, and as many as 33% (!) think that Britain is the richer country. (This is comically untrue. Switzerland is more than a third richer than Britain.) Only one in three respondents, respectively, realise that Britain is poorer than Singapore, Australia, Germany and the United States. In the aggregate, respondents think Britain is richer than all US states bar six, when the truth is that Britain is poorer than all 50 of them.

When respondents are shown the true figures, the most common reaction is a mix of shock, disappointment and embarrassment. Which is good. I want people to be shocked, if that’s what it takes to shake them out of their complacency. Complacency breeds bad policy choices, and that’s what Britain’s relative economic decline is: a choice.

On social media, though, the responses have been rather different. Every time I post an excerpt from the report, my notifications fill up with people listing all the things they dislike about America.

This has become a common genre, not just in response to our report, and not just in Britain. All over Western Europe, people respond to the growing income gap between Europe and America (or in some versions, Dubai) by reassuring themselves that while Europe may be poorer in material terms, we are spiritually, culturally and socially richer. We have a higher quality or life, and better vibes. Eat your GDP, yanks. I'm off to my lovely Mediterranean wine bar, or my stylish Paris cafe, or my cosy Germanic Bierkeller, to enjoy life.

This a coping mechanism, and it is completely missing the point.

Nobody is suggesting that Europe should become a replica of America (let alone Dubai). The point is simply that they are doing better than us in some areas, because they have made better policy choices. Their labour markets, their financial markets, their energy markets, and in parts of the country (there is a huge amount of variation), their housing markets, have outperformed most of their European counterparts (although there is obviously a huge amount of variation within Europe as well). If we sorted out our issues in those areas, we might become 'more American' in terms of some macroeconomic aggregates, but Europe would very much still be Europe. We would still have our wine bars, cafes and Bierkeller. We might actually have more of those, stocked with better wine, better coffee and better beer.

But in order to get there, we need to stop romanticising our own economic decline. Strangulating our economies does not make us culturally superior to anyone.

Kristian Niemietz

Editorial Director

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IEA Podcast: Senior Policy Fellow Lord Frost and Editorial Director Kristian Niemietz are joined by Senior Economist Valentin Boboc to discuss is Britain really has a housing shortage, the early success of the government’s infrastructure bill, and the fiscal drag in asset prices that Reeves is relying on - IEA YouTube

Your questions answered!

To celebrate 200 episodes of the weekly IEA podcast, Lord Frost, Kristian Niemietz, and Callum Price answered your questions in a special bonus episode of the podcast

🏛️ Has big government reached the end of the line?

💰 Is inflation always a monetary phenomenon?

🌍 What are the free market solutions to climate change?

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News and Views

“Britain’s problem is not that wealth inequality is too high, or that taxes are too low. Britain’s problem is that the economy is not growing.” Kristian Niemietz dismantles the wealth tax hype in CityAM

The demand for growth is there — politicians just need to speak to what it means for real people writes Callum Price in ConservativeHome

More u-turns please, Valentin Boboc lists a few more u-turns he would like to see from the Government, CapX

“If ministers can drop rent controls and water down pension mandates in the same week, they can look again at any number of mistakes. The list is long, and U-turns alone won’t fix everything overnight. But small, deliberate steps can improve the state of the economy and public finances. All it takes is a few more U-turns.”

In defence of Palantir, Matthew Lesh writes the case for the tech-firm delivering for the NHS, The Telegraph

“Last time the NHS tried to build its own technology at this scale, it was a disaster. The NHS National Programme for IT, a project with similar goals in the 2000s, cost taxpayers around £10bn-£12bn but was so dysfunctional that it was ultimately abandoned. By contrast, Palantir’s contract is worth £330m over 7 years – coming to just £200,000 per year per organisation. This is a minuscule cost compared to any imaginable alternative. The Treasury’s infrastructure authority, NISTA, rates it green, a status achieved by only around 15 per cent of major government programmes. Over 123 trusts are already using it, and 80 have reported benefits.”

IEA appoints Professor Juan Castañeda to board of trustees

Professor Juan Castañeda, Director of the Vinson Centre for the Public Understanding of Economics and Entrepreneurship, Professor of Economics at the University of Buckingham, and new IEA Trustee said:

‘It is an honour to join the board of trustees of the Institute of Economic Affairs. I have admired the IEA since I was an Economics student, reading its publications rooted in Classical Liberalism, and later on in my academic career I have had the opportunity to contribute to its agenda. We seem to have forgotten how we achieved the levels of growth and prosperity we have enjoyed over the last two centuries. It is the expansion of the markets and free enterprise what leads to greater economic growth and prosperity over the long term. The values the IEA stands for couldn’t be more needed today, and I am looking forward to working with Linda Edwards, my fellow board members and the staff in furthering the mission of the IEA.’

Linda Edwards, Chair of the Board of Trustees, said:

“We are delighted to welcome Juan to the board. He brings deep expertise in monetary economics and central banking at a time when those questions are central to the UK’s economic prospects. His long association with the IEA — through the Shadow Monetary Policy Committee, the Academic Advisory Council, and the Journal of Economic Affairs — means he arrives with a thorough understanding of our mission and values. We look forward to the contribution he will make at this exciting time for the IEA.”

“We also want to extend a warm and heartfelt thank you to Professor Martin Ricketts for his exceptional length of service and contribution to the IEA. He is intellect and belief in the ideas that the IEA was founded on have been vital to the work of the Institute, our partners at the University of Buckingham, and beyond. He will always be a part of the wider IEA family”

Events and Opportunities

The conversation then turns to the Planning and Infrastructure Act and its restrictions on vexatious judicial reviews, using the recent case of a solar farm as the first real-world test. The panel assesses whether cutting the artificial waiting period from 14 months to two months represents a genuine turning point for infrastructure delivery in Britain, or whether NIMBYs will simply adapt and find new avenues for delay.

The final segment examines a warning from Conservative MP Neil O’Brien that Treasury forecasts for capital tax revenues may be built on shaky foundations. With the Government leaning heavily on stamp duty, capital gains tax, and inheritance tax to plug a fiscal gap, Boboc and Niemietz argue the tax base is too narrow, too volatile, and too geographically concentrated to deliver the roughly £30 billion the Treasury is counting on by 2030.

The Institute of Economic Affairs is a registered educational charity. It does not endorse or give support for any political party in the UK or elsewhere. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The views represented here are those of the speakers alone, not those of the Institute, its Managing Trustees, Academic Advisory Council members or senior staff.

The discussion opens with the challenge of winning public support for a smaller state, with Lord Frost arguing the current tax and spend model is close to exhausting itself and that the ideas need to be ready for when it does. The panel go on to address Milton Friedman’s monetary theory and how it applies to recent inflation, before turning to climate policy, where they make the case that adaptation through market incentives is preferable to emergency state-led intervention. The housing section examines why supply constraints drive price volatility, why migration has complicated the political case for building, and why expectations of ever-rising house prices are a consequence of policy rather than culture. The episode closes with questions on the Norway model, the Reform versus Greens policy comparison, whether small staters should work in the public sector, and Stephen Davies’ Great Realignment thesis.

The panel also reflect on passing 200 episodes of the weekly podcast and what the IEA’s role is in shaping the economic debate at a moment when the dominant political settlement looks increasingly fragile.

The Institute of Economic Affairs is a registered educational charity. It does not endorse or give support for any political party in the UK or elsewhere. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The views represented here are those of the speakers alone, not those of the Institute, its Managing Trustees, Academic Advisory Council members or senior staff.

Thumbnail image: Greta Thunberg, Stockholm, 30 April 2024. Photo by Frankie Fouganthin, licensed under CC BY 4.0. via Wikimedia Commons.

Thumbnail image: Margaret Thatcher. Photo provided by Chris Collins of the Margaret Thatcher Foundation, licensed under CC BY-SA 3.0, via Wikimedia Commons.

Modern Monetary Theory—or MMT—was dismissed by traditional economists right away. But I didn’t want to do that. I wanted to learn as much as I could about it before drawing conclusions. So I approached MMT with an open mind and read the academic work by its theorists and critics. I then wrote a book that presents my conclusions.

I think we all need to understand what MMT says, as it’s a deeply seductive theory with the potential to change how people discuss policy. Unfortunately, it isn’t a sound economic theory. In this article, I debunk some of MMT’s mantras, which are found all over its literature.

The government is not constrained like a household

MMT assumes the treasury is allowed to create money to fund its spending. The usual rules intended to limit this practice, such as central bank independence, are assumed to be non-existent or not enforced.

As a result, MMT concludes that the central government does not have financial constraints. In other words, it cannot “run out of money” like a household, it doesn’t need to “find the money” to do public works, and so on. These are some of MMT’s most publicised conclusions.

But there’s a problem. What MMT says is a truism. What it really says is, “If the government is allowed to create money, then it cannot run out of money.”

Every economist knows this. The question is never whether it is technically possible to let the government fund its spending with money creation—we know it is. The question is whether it is a good idea. Most economists think it’s not.

Economists don’t think we can trust politicians to use money creation judiciously for political reasons and due to inflationary bias. MMTer William Mitchell suggests a “wise government” can use the power of MMT to increase prosperity. I grew up in Argentina, so you can see why I’m a bit skeptical about this.

In addition, economists don’t believe there’s much to be gained economically from operating the MMT way. They don’t think GDP can be permanently increased and unemployment eliminated by letting the treasury create money, which is what MMTers ultimately suggest.

If an MMTer tells you the government doesn’t have financial constraints, tell them, “Yes. If we let the treasury create money, then it cannot run out of money. Everyone knows that. How is this insightful?”

Taxes and bonds are not used to fund the government

MMT tries to prove that central bank independence is completely fictitious, and thus MMT’s suggested policies can be applied without major changes to current institutions. You just need to analyse accounting details more carefully to see the truth.

For example, according to MMT’s analysis, the US federal government creates new money every time it spends. Whenever it collects taxes, it completely destroys the money from the record. MMTer Stephanie Kelton says, “Clearly, government spending cannot be financed by money that is destroyed when received in payment to the State!”

MMT’s analysis is incorrect—it suffers from numerous technical and logical problems. For example, MMT says that when the US treasury moves money into its account at the central bank, that money is “destroyed.” In reality, the balance in that account goes up and is properly recorded, as in any bank transfer. MMTers seem to be thrown off by how statisticians calculate common money aggregates, such as M0 and M1, which don’t include the balance in the treasury’s bank account.

The error has been pointed out to MMTers to no avail. In Stephanie Kelton’s 2020 book, The Deficit Myth, she insists the US federal government creates new money every time it spends and destroys money when it collects taxes.

If an MMTer tells you the government doesn’t need taxes before it can spend, ask them, “If the balance of the treasury’s bank account is zero, how can it continue spending without taxes or bonds?”

Government deficits increase our savings

According to MMT, a government deficit is a surplus for the rest of us. In The Deficit Myth, Stephanie Kelton says, “Fiscal deficits don’t eat up our savings; they enlarge them! … That’s because government deficits are always matched—penny for penny—by a financial surplus in the nongovernment bucket … Fiscal deficits will always lift our collective (financial) boat.”

It is technically true that a government deficit puts more “financial wealth” in the hands of the public. This is an accounting fact—if the government creates money or issues bonds, it puts more financial assets in the hands of others. But this doesn’t mean people get richer in real terms, as financial wealth is not the same as real wealth.

To see the problem just consider the case of Argentina. Thanks to government deficits, many Argentinean households have been able to save millions of pesos! But they don’t seem to be getting any richer.

Tell the MMTer, “If the government gives one million newly created pounds to every household, that’s a deficit of the government and a surplus of households, just like MMT says. Why don’t governments do this to end poverty?”

Note that MMTers often says things that are technically true but economically meaningless, and this was one example of it. Here’s another example: MMTers often say that a monetarily sovereign government cannot default on debt that it owes in its own currency. Once again, is it technically true that the government can always create money to wipe out its debt. But it is likely it would still default on its debt economically, as the resulting inflation would make the debt repayments worth less than expected by creditors.

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The government should budget based on resources, not money

According to MMT, market economies always have a huge number of idle resources lying around, or “slack.” For example, some MMTers think there is 25% spare economic capacity in Europe.

The government should create money persistently and use it to mobilise those spare resources, they say. This doesn’t cause inflation because the government doesn’t compete with the private sector for the same resources. Inflation only kicks in after all resources are fully utilised, and this is very far away.

According to MMTers Yeva Nersisyan and Randall Wray, “government spending creates ‘free lunches’ as it utilises resources that would otherwise be left idle.”

Note that this line of thinking seems to have inspired Zack Polanski, who recently said, “The fiscal rule we need to have is to make sure that inflation doesn’t go higher than the skills and resources that we have in our economy.”

Unfortunately, MMT’s analysis suffers from numerous theoretical problems. For starters, it relies on a simplistic and outdated theory of inflation. For example, the theory gives no role to expectations about the future, and it assumes unemployment can be brought all the way down to zero without causing inflation, which most economists disagree with.

In addition, MMT’s theory of “slack” is unworkable. It relies on a non-standard interpretation of Keynes’ General Theory, which was disproven long ago, in order to show that slack is severe and permanent regardless of wage and price adjustments. The theory suffers from well-documented issues. MMT’s reliance on subpar theories makes it underestimate inflation and overestimate slack.

On the practical front, it seems difficult for the government to only mobilise idle resources. For example, it’s hard to design a job guarantee program in such a way that it would not compete with the private sector for at least some of the same workers.

Moreover, politicians may not be incentivised to perform realistic calculations of resources and slack. For example, MMTers Yeva Nersisyan and Randall Wray analyse the Green New Deal in terms of resources, as opposed to budgets, as prescribed by MMT. However, their calculations aren’t credible. For example, they argue that free college “pays for itself” because productivity gains exactly offset the required resources. No detailed calculation is provided for it. The same goes for many other components of the Green New Deal.

Ask the MMTer, “If economic slack is so severe, why do we usually have positive inflation every year? Can we trust politicians to analyse resource requirements and economic slack carefully?”

If you want to learn more about MMT, including its views on hyperinflation, Bitcoin, and the job guarantee program, get a copy of my book If You Can Just Print Money, Why Do I Pay Taxes?: Modern Monetary Theory Distilled and Debunked in Plain English.

• The case against the wealth tax

• Bank Rate holds

• Britain is poorer than it thinks

Four years ago, a colleague asked me whether I could chair a debate with a chap called “Gary Stevenson”, a YouTuber and self-styled “inequality economist” who I had never heard of. It was a good-natured debate, which I’d describe as a mix of amicable disagreement and talking past each other. Stevenson was clearly a man on a mission: a single-issuer, whose One Big Idea was that spiralling wealth inequality was destroying the country, and that it had to be stopped, perhaps with a wealth tax of some kind.

I didn’t buy his diagnosis of Britain’s problems, and if I had bought it, I still wouldn’t have bought his prescription.

But either way – at the time, I didn’t give these issues much further thought, and pretty much forgot about that debate the moment the recording stopped. Left-wing social media influencers are legion, and there was nothing particularly unusual about Stevenson’s “the bankers the bonuses the bankers the bonuses” politics. The wealth tax, meanwhile, struck me as an obscure niche topic. Who cares about wealth taxes? That’s a 20^th-century idea, which, today, is only of interest to a few tax nerds.

Or so I thought in 2022. But it turns out that four years is a long time in the policy ideas space. Today, Gary Stevenson is a social media superstar with more than 1.5 million YouTube subscribers and a bestselling book; the wealth tax enjoys the support of three quarters of the public; and Zack Polanski, who adopted the wealth tax as his flagship policy, is the most popular political leader with Millennial and Zoomer voters by quite a margin. Far from a “niche topic”, the wealth tax has become the policy idea of the hour. A massive hype has developed around it.

But as I show in my new IEA report Fool’s Gold: The case against the wealth tax, and suggestions for alternatives, it is a completely undeserved hype. Wealth taxes come with major intrinsic problems, and there are good reasons why so many countries have previously abandoned them. Creating a buzz around them now, and marketing them as “cool”, does not change the economic arguments.

Nonetheless – the wealth tax is not an idea we should lightly dismiss. There are good reasons why it was previously abandoned, but there are also good reasons why people of very different political persuasions were once attracted to it. Debunking the weak, slopulist arguments for wealth taxes would be shooting fish in a barrel, but as is customary for IEA publications, my paper does not take the easy way out. It uses “steelmen” rather than strawmen, and addresses the strongest possible arguments for a wealth tax.

Even the steelman, though, is not all that steely in the end, and shatters upon contact with the available alternatives.

Kristian Niemietz

Editorial Director

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IEA Podcast: Director of Communications Callum Price is joined by Senior Policy Fellow Lord Frost and Editorial Director Kristian Niemietz to discuss the Bank of England’s latest update, wealth taxes, and tumble dryers - IEA YouTube

New Paper: the Case Against the Wealth Tax

• The UK raises more revenue from wealth and wealth-related taxes as a share of GDP than any other OECD economy — ahead of Spain, Norway and Switzerland, the only three European countries that still have a formal wealth tax

• Wealth taxes have been tried across Western Europe and repeatedly abandoned — even by left-wing governments — because of high administrative costs, weak revenue and damaging effects on investment

• Wealth inequality is lower today than at almost any point in the 20th century. The wealthiest 1% own around 22% of total wealth — below the EU average of 25% and well below the US figure of over 35%.

• To reduce wealth inequality further, Britain should enable more people to create it rather than tax it more — through Australian-style pension reform and a YIMBY housing revolution that would extend property ownership to millions

  Read the Report

• Britain raises more from wealth taxes than any other rich nation, The Telegraph

• Major warning issued over calls for UK to impose wealth tax, The Express

• NEW REPORT: Britain Has Highest Wealth Taxes in OECD, Guido Fawkes

The Wealth Tax Delusion: The Policy That Promises Everything and Delivers Nothing, Kristian Niemietz debates the wealth tax with Arun Advani, IEA YouTube

Weakness in broad money growth should help keep rates on hold

Commenting on the Bank of England’s decision to hold interest rates, Julian Jessop, Economics Fellow at the Institute of Economic Affairs said:

““The Bank of England was right to keep interest rates on hold today. There is huge uncertainty, reflected in the three different scenarios discussed in the accompanying Monetary Policy Report. But the Committee has judged that the upside risks to inflation from higher commodity prices are being offset, at least for now, by the weakness of the labour market and the downside risks to economic growth.

“The Bank now expects CPI inflation to dip from 3.3% in March to 3.0% in April, then rise again to peak at a little over 3.5% in the autumn. That should just about be low enough to keep interest rates on hold, especially with unemployment forecast to pick up again too.
But there is one other factor which deserves more attention. This is that growth in broad money supply is also relatively subdued, especially compared to the surge which fuelled the inflation spike in 2022.

“The Bank’s latest Monetary Policy Report does at least note that the ratio of broad money to nominal GDP has fallen further below its pre-pandemic trend. However, none of the MPC members mention this in their comments.”

News and Views

Hold interest rates, says IEA’s Shadow Monetary Policy Committee

With money growth stable, there is no good reason to adjust anything.

• The Institute of Economic Affairs’ Shadow Monetary Policy Committee (SMPC) voted 8-1 to hold Bank Rate. One member voted to raise rates by 25 bps.

• SMPC members felt that current money growth levels were satisfactory and should be maintained.

• A group of independent economists that shadow the Bank of England has called for interest rates to be held. This comes in the context of the Bank’s Monetary Policy Committee (MPC) decision about interest rates this week (Thursday April 30th).

The Shadow Monetary Policy Committee, hosted by the free market think tank the Institute of Economic Affairs, has in the past criticised the Bank for paying insufficient attention to money growth and its implications for the outlook for inflation. In 2021, the SMPC made one of the earliest calls for the Bank to start raising interest rates and criticised the Bank’s forecasts for understating the threat of inflation. Subsequently, the SMPC was concerned that money growth rate allowed to fall negative (although to some extent that returned the level of money to that implied by its pre-Covid growth trend).

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The British public doesn’t understand how poor we really are, IEA research covered in The Telegraph

“A deeply worrying chart from the Institute of Economic Affairs (IEA) reveals that, on the whole, the public wildly misunderstands how businesses operate. They don’t understand public services, either. According to polling conducted on the IEA’s behalf by Freshwater Strategy, the British public believes energy companies enjoy an average profit margin of 57pc. The true figure is closer to 5-15pc. They believe that supermarkets and airlines are gouging us for a 50pc margin, despite the fact food and drink are relatively inexpensive in the UK compared with our European cousins, and flights are comically cheap.”

Why Don’t Governments Just Print More Money? Chris Snowdon interviews Emmanuel Maggiori on modern monetary theory, IEA YouTube

It’s time to say adios to the inheritance tax, IEA research on the IHT reference in CapX

As the Institute of Economic Affairs argues in its recent paper ‘A Taxing Inheritance’, IHT is not merely unpopular but economically harmful – arbitrary, distortionary, and an obstacle to entrepreneurship and international competitiveness.

COVID Was the Biggest Event Since WW2 — And We’ve Learned Nothing, Chris Snowdon interviews Roger Bate, IEA YouTube

There’s a reason that taxes are at crippling levels and public spending is out of control: Voters, Lord Hannan outlines why he is quitting party politics to lead the IEA, The Telegraph

Think-tanks are there to change minds, to create a climate where politicians can act – and only then to write the detailed plans for them. “We will not solve our problem by electing the right people,” said Milton Friedman, a stalwart of the IEA throughout the 1970s. “We will only solve our problem by making it politically profitable for the wrong people to do the right thing.”

In defence of lunchtime drinks, Chris Snowdon on how Green MP Hannah Spencer’s viral video reveals Britain’s growing American-style prudishness about alcohol, The Critic

Class war is the enemy of good economics, Mani Basharzad writes in CapX

Events and Opportunities

Then the team turns to wealth taxes. Kristian has published a new IEA paper demolishing the case for them — and the arguments are sharper than you might expect. Britain already raises more from wealth-related taxes than almost any OECD country. Wealth inequality has been broadly flat since 1990. And even the most optimistic wealth tax proposal would raise, at best, 1% of GDP — nowhere near enough to fund the endless list of promises its advocates attach to it. The real question is why this idea has consumed so much of the national conversation when it solves almost nothing.

Finally, the Government’s plan to effectively ban traditional tumble dryers in favour of slower, less effective heat pump models. Is this net zero policy, EU alignment by stealth, or simply Ed Miliband picking your appliances for you? The team argues it is a perfect microcosm of everything wrong with British economic policy — a rich country solution imposed on a country that simply cannot afford it. Subscribe to the IEA on YouTube and on Substack at iea.org.uk for more.

The Institute of Economic Affairs is a registered educational charity. It does not endorse or give support for any political party in the UK or elsewhere. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The views represented here are those of the speakers alone, not those of the Institute, its Managing Trustees, Academic Advisory Council members or senior staff.

The conversation examines the core problems with a wealth tax in practice: the valuation difficulties, the risk of capital and people leaving the country, and the fundamental contradiction at the heart of the wealth tax campaign, which simultaneously promises to cut taxes on working people, fund the NHS, finance the climate transition, and reduce inequality. Advani draws on the Wealth Tax Commission’s findings, including the estimate that a 1% tax on wealth above £10 million could raise around £10 to £12 billion, but notes that behavioural responses mean the real figure would be considerably lower. Niemietz argues the real cost of the wealth tax debate is its opportunity cost: every hour spent on a policy that will not work is an hour not spent on things that would.

The final section turns to what should be done instead. Niemietz points to the genuine drivers of falling wealth inequality in the post-war period: wider pension saving and rising home ownership. He argues that liberalising planning rules and building more homes, at the scale Britain managed in the 1930s, would do more to spread wealth than any tax on it. Advani adds that fixing the existing, poorly designed taxes on capital income and transfers would be a more productive use of political energy than building an entirely new tax from scratch.

The Institute of Economic Affairs is a registered educational charity. It does not endorse or give support for any political party in the UK or elsewhere. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The views represented here are those of the speakers alone, not those of the Institute, its Managing Trustees, Academic Advisory Council members or senior staff.

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Britain already levies more as a share of GDP in wealth and wealth-related taxes than any other OECD country, making the case for a new wealth tax weaker here than anywhere else in the developed world, according to a new paper from the Institute of Economic Affairs.

Fool’s Gold: The case against the wealth tax, and suggestions for alternatives by Dr Kristian Niemietz makes the comprehensive case against a new wealth tax. It finds that when property taxes, inheritance tax, stamp duty and capital gains tax are combined into a single category of ‘wealth and wealth-related taxes’, the UK raises more revenue from them as a share of GDP than any other OECD economy — including Spain, Norway and Switzerland, the only three European countries that retain a formal wealth tax. Wealth tax campaigners are, in effect, demanding that Britain layer an additional tax on top of a system that already taxes wealth more heavily than its peers.

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Summary

• Wealth taxes have been tried many times. In the early 1990s, about half of Western Europe still had wealth taxes. In the meantime, all but three of these countries have given up on them, including, in some cases, under left-wing governments, and even the three remaining ones have scaled back their wealth taxes.

• Governments that abolished wealth taxes justified this by pointing to their high administrative and compliance costs, adverse behavioural responses (especially negative effects on investment) and limited revenue-raising potential. These are also the reasons why previous attempts to introduce wealth taxes in Britain were abandoned.

• This paper mostly draws on the work of economists who are broadly sympathetic to the idea of wealth taxes, as opposed to ideologically hostile critics. Even a lot of their sympathisers concede that wealth taxes have major drawbacks.

• Britain does not currently have a tax which meets the strict textbook definition of ‘a wealth tax’, but it does have several wealth-related taxes, which can be considered close-enough substitutes, and it already raises more revenue from such taxes than any other OECD economy.

• For its supporters, the wealth tax has become an all-purpose tool. They are trying to achieve too many different things, and often mutually incompatible things, with it. The ‘wish list’ of things that a wealth tax has been promised to finance is simply implausibly long, and then it is also supposed to do many things beyond raising revenue on top of that.

• Wealth inequality in the UK is not especially high, and it is not rising. The top 1% of the wealth distribution account for about 22% of the total wealth, which is less than the EU average and much less than it used to be for most of the 20th century.

• Wealth taxes have rarely raised more than 1% of GDP in revenue, with typical figures being much lower than that. Where wealth taxes have existed for long periods, revenue has often tended to decline over time.

• In recent years, empirical evidence on behavioural responses to wealth taxes has largely confirmed the suspicions of sceptics. Wealth taxes really do reduce and distort investment in a number of ways. None of these effects are catastrophic, but they keep adding up and they tend to get worse over time.

• There are vastly superior alternatives to wealth taxes, which are based on creating wealth rather than penalising it. In the 20th century, Britain had long periods of falling wealth inequality, which was not explained by the government expropriating the wealthy but simply by more people acquiring pension wealth and housing wealth.

• Britain could move to a pension system more like the Australian one, where people pay contributions into their own pension fund rather than to a state pension programme. In such a system, the vast majority of people have the opportunity to build up considerable amounts of wealth over time.

• Wealth inequality in Britain was at its lowest when housing was relatively affordable and home ownership rates were at peak levels. Britain needs a ‘YIMBY’ revolution to unleash a building boom. This would give millions of people the opportunity to build up housing wealth.

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Dr Kristian Niemietz, Editorial Director and Head of Political Economy at the Institute of Economic Affairs, said:

“The current hype around wealth taxes is entirely vibes-based, and completely undeserved. Wealth taxes have been tried many times before, and no actually existing wealth tax has ever come close to delivering what its keenest supporters are promising today.

“Among economists, even those who are sympathetic to wealth taxes in principle concede that it comes with a myriad of practical problems and harmful side-effects.

“Everything wealth tax campaigners are trying can be better achieved in other ways. There are vastly superior alternatives to wealth taxes.”

Dan Neidle, Founder of Tax Policy Associates said:

“The UK’s greatest problems are anaemic economic growth and a lack of supply of housing. An annual wealth tax offers no solution to either, and risks actively hindering the growth we desperately need. This paper does an important job of shifting the debate: if we want to tackle inequality, the answer isn’t an unworkable new tax; it’s building homes and letting more people build wealth of their own.”

The Rt Hon Lord Frost, Senior Policy Fellow at the Institute of Economic Affairs, said:

“Wealth taxes are panacea policies, fantasy solutions advocated by those who don’t want to face up to the task of implementing an economic strategy that will genuinely make us richer and more prosperous. What Britain needs is less spending and lower taxes, not another effort to extract even more from hard-pressed businesses and voters.”

Maggiori explains how MMT was built on a foundational accounting error made in the late 1990s, when its originators misread the operations of the US Treasury and Federal Reserve and concluded that government spending creates new money from nothing. The discussion examines MMT’s theory of taxation, which holds that taxes do not fund government but instead legitimise currency, redistribute income, and dampen inflation. Snowdon and Maggiori also go through MMT’s policy proposals, including the Green New Deal financing paper, and find them riddled with assumptions about the mobility of resources that do not hold up in practice.

The conversation also covers the rhetorical tactics used by MMT advocates online, the response of serious left-wing economists who have rejected the theory, the Argentina example of nominal versus real wealth, and how figures like Zach Polanski have confused MMT’s hypothetical world with how things actually work. Maggiori explains why MMT’s inflation theory functions like an on-off switch and why that is fundamentally at odds with how real economies behave.

Emmanuel’s new book, If You Can Just Print Money, Why Do I Pay Taxes?, is out now (https://emaggiori.com/mmt/)

The Institute of Economic Affairs is a registered educational charity. It does not endorse or give support for any political party in the UK or elsewhere. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The views represented here are those of the speakers alone, not those of the Institute, its Managing Trustees, Academic Advisory Council members or senior staff.

Roger sets out how the WHO’s funding model has shifted dramatically over its 80-year history, with over 80% of its budget now coming from voluntary donors including the Gates Foundation, Bloomberg Philanthropies and the European Commission rather than nation states. He argues this has left the organisation aligned to donor priorities rather than public health needs, contributing to its failures on COVID — from dismissing the airborne nature of the virus to going along with Chinese-style lockdowns while abandoning its own pandemic playbooks. The conversation also covers the ongoing pandemic treaty negotiations, the WHO’s damaging stance on tobacco harm reduction and vaping, and the question of who should lead the organisation next.

Roger and Christopher discuss whether the WHO can be reformed from within or whether a replacement organisation is needed, the role of billionaire philanthropy in distorting global health science, and why budgets for tuberculosis, malaria and HIV are being squeezed to fund pandemic preparedness plans modelled on the very response that failed. Roger argues the most momentous event since the Second World War has gone almost entirely without honest evaluation — and that without one, the next pandemic will repeat every mistake of the last.

The Institute of Economic Affairs is a registered educational charity. It does not endorse or give support for any political party in the UK or elsewhere. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The views represented here are those of the speakers alone, not those of the Institute, its Managing Trustees, Academic Advisory Council members or senior staff.

• A new era dawns at the IEA

• Who are the millennial liberals?

• The start of the inflation shock

The latest jobs figures published by the government this week initially seemed like a surprise - the headline figures are going in the right direction. Overall unemployment reduced from from 5.2% to 4.9% in the three months to February. Could it be that we’ve topped out on the consequences of this government’s triple-threat approach to job destruction: raising the minimum wage, raising taxes on businesses hiring people, and the Employment Rights Act? Unfortunately not.

As our own Len Shackleton points out, the fall in unemployed (60,000) is more than matched by the rise in those becoming economically inactive completely - are people getting jobs or just giving up? What’s more, the story for young people continues to get worse, as employment for the young falls again. This is confirming further still what we already know: young people are bearing the brunt of the government’s approach to work.

And what about the coming AI-pocalypse? Well, according to think tank friends the Centre for British Progress, the effect of AI on jobs in the UK is yet to really take hold. They have found, three years after the launch of ChatGPT, that there is no evidence that AI has replaced jobs at scale in the UK. There are some interesting details, like an uptick in some jobs that are AI-exposed such as programmers and finance analysts, with a drop in others, like clerical and administrative roles. But as Daniel Freeman notes on this week’s podcast, other revolutionary technologies took decades, rather than years, to be felt in the broader economy. What seems to be clear is that damaging Government action is the bigger threat to jobs in the immediate future.

Fortunately, at least one job vacancy has been filled this week, as Lord Hannan of Kingsclere is announced as our new Director General here at the IEA. We are delighted to be welcoming such a renowned, dedicated, and formidable advocate of liberty into the IEA fold to lead us into a new era, and look forward to him taking the reins in June.

Callum Price

Director of Communications

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IEA Podcast: Director of Communications Callum Price is joined by Managing Editor Daniel Freeman and Energy Analyst Andy Mayer to discuss AI and the jobs market, and Miliband’s latest energy efforts - IEA YouTube

Lord Hannan of Kingsclere will be joining as the IEA’s new Director General

The Board of Trustees of the Institute of Economic Affairs (IEA) is delighted to announce that Daniel Hannan, Lord Hannan of Kingsclere, will become Director General and Ralph Harris Fellow of the Institute from 1 June 2026.

His appointment marks a new chapter for the IEA — one focused on making the case for freedom, free markets, and limited government with renewed energy, broader reach, and the uncompromising intellectual clarity the Institute has always stood for.

Lord Hannan of Kingsclere, incoming Director General of the Institute of Economic Affairs, said:

“The IEA set Britain free. When it was founded in 1955, there was a consensus in favour of high spending, industrial management and economic planning. Ralph Harris and Arthur Seldon showed people what was wrong with those ideas, and thus unleashed the genius of our nation.

“We face a similar challenge today. Public spending and taxation are higher now than they were in 1955. We are back to the fatal conceit, the idea that politicians, bureaucrats and planners know best.

“Just like the IEA’s founders, we need to change people’s minds, to open people’s eyes. The route to national prosperity, now as then, is through deregulation, free trade, sound money and low spending. It’s not just the politicians we need to convince; it’s not even primarily the politicians. When voters understand the case for smaller government, MPs follow.

“I am so grateful to every one of my predecessors, from Ralph Harris, who inspired me as a teenager, to David Frost, whom I am proud to call my friend. They kept the flame burning. Now it is time to heap up the fire.”

Linda Edwards, Chairman of the IEA Board of Trustees, said:

“Lord Hannan is one of those rare figures who combines serious intellectual depth with the ability to communicate ideas to a genuinely mass audience — and to do so with energy and conviction that is entirely his own. He does not merely hold the right views; he has spent his life persuading others to share them. That is exactly what the IEA needs.

“The founders of this Institute understood something that is easy to forget: that advances in public understanding begin with advances in rigorous thinking. You do not shift the terms of serious debate by trimming your conclusions to what is currently fashionable. You shift them by examining the evidence carefully and making the argument, with patience and with rigour. Daniel has been doing that his entire career. I have every confidence that under his leadership the IEA will enter a period of exceptional impact.

“I also want to express the Board’s warmest thanks to Lord Frost for his service as Interim Director General. He brought to the role the same seriousness of purpose and clarity of principle that have always characterised his public life, and he leaves the IEA in strong shape. We are delighted that he will remain closely connected to the work of the Institute in his new role as Senior Policy Fellow.”

• Lord Hannan appointed IEA DG, read more on Guido Fawkes

The UK is only in the early stages of the inflation shock

Commenting on the inflation figures, Julian Jessop, Economics Fellow at the Institute of Economic Affairs said:

“The jump in UK inflation from 3.0% to 3.3% in March is bad news but not quite as bad as some feared (the Bank of England expected the rate to be “close to 3½%”).

“Moreover, this jump can be entirely accounted for by the increases in transport costs (mainly motor fuels), which is hopefully a one-off.

“The Bank’s Monetary Policy Committee may also be reassured by the news that core inflation (excluding food and energy) ticked down from 3.2% to 3.1%.

“Nonetheless, these numbers are too high for comfort, and the headline rate is moving even further away from the MPC’s 2% target.

“This is also just the early stages of the latest inflation shock. It will take several months for the jumps in the costs of fuel and other commodities to be passed through in full to the prices of other goods and services.

“It is also too soon to judge whether there will be any other second round effects, notably a sustained increase in inflation expectations.

“In the near term, inflation will probably fall back in April, reflecting the reduction in this month’s Ofgem cap on domestic energy bills and some favourable effects from other regulated prices.

“But pipeline pressures are building elsewhere and, unless the government intervenes further, the Ofgem cap is going up again in July.

“That said, two factors should prevent inflation from taking off – and mean that the Bank of England can keep interest rates on hold despite the inflation risks.

“First, demand is weak. Firms have little pricing power, other than on essential goods and services, and the softness of the labour market means that wage growth is likely to remain subdued.

“Second, the supply of broad money (specifically, “M4ex”) has been growing at an acceptable pace of around 4%. This means that increases in the prices of the goods and services most affected by the Iran war are more likely to be offset by falls, or smaller increases, in the prices of others.

“In contrast, growth in broad money peaked above 15% in 2021 as the Bank of England monetised the surge in government borrowing during the pandemic. This then helped to fuel the spike in inflation in 2022 as energy prices jumped following Russia’s full scale assault on Ukraine.

“In short, unless the Middle East crisis escalates further, UK inflation will probably be capped at around 4% this year and then fall sharply next year.

“But this is still a major shock, with the economy set to flatline at best in the second quarter and possibly the third too.”

• Bank of England ‘flying blind on inflation’, read more in The Telegraph

News and Views

Britons are now working like Americans, IEA research on the differences between expectations and reality of the UK’s economic performance compared to the USA covered in the Financial Times

The hidden costs of capping CEO pay, Professor Len Shackleton writes on the Green Party’s latest policy in CapX

“With markedly reduced upper earnings, saving to start your own business would become well-nigh impossible. And private donations to charities would become insignificant. No more privately-funded new buildings for national institutions. Independent initiatives of all kinds would be discouraged. The state would have to expand its reach still further, with all economic and cultural activity increasingly in its hands – and taxation rising to match.”

Are all millennials socialists? Callum Price interviews Kristian Niemietz about the new IEA Insider series ‘Millenial Liberalism’, IEA YouTube

Proposed consumer lawsuit regime may expose businesses to mass litigation, IEA research on class action lawsuits covered in CityAM

How will the smoking ban work? Christopher Snowdon quoted on the folly of the generational smoking ban in the Daily Mail

‘Most people can easily buy a pack of illicit cigarettes for £5 and the people who sell them don’t care how old their customers are,’ he told the Daily Mail.

‘Most tobacco in Australia is now illegal thanks to high taxes and we are heading in the same direction. The generational sales ban will only accelerate that.’

Events and Opportunities

Opportunity: Want to help shape the big decisions of our time?

The Public Policy Bootcamp (3-5 June, University of Buckingham) is a 2.5-day residential deep dive into today’s key challenges (from global trade to fiscal policy) hosted by the IEA and the Vinson Centre. Open to early-career professionals across politics & research.

Apply here by 5 May

The episode opens with the latest jobs figures, which showed unemployment falling to 4.9% — but with the bulk of that drop driven by people leaving the workforce altogether rather than finding work. The panel examine the role of the Employment Rights Act, rising employer National Insurance contributions, and the equalisation of the minimum wage for younger workers, arguing these policies have made hiring significantly more expensive and are contributing to rising economic inactivity, particularly among 18 to 24 year olds. The panel also touch on the Unite Union staff strike against their own union and the broader implications of expanded trade union access rights. A new Centre for American Progress report on AI and the UK labour market is then assessed, finding little disruption to employment so far, with the counterintuitive example of programming jobs actually rising since the rollout of tools like ChatGPT.

Andy Mayer then walks through Ed Miliband’s proposal to reform the renewables obligation system, which would shift older wind farm contracts from market-linked pricing to the contracts for difference model. Mayer argues that while the reform may produce more price stability, it is unlikely to deliver lower bills and risks undermining the price mechanism in the electricity market, leaving Britain with a consistently expensive energy system. The panel close by discussing what a sensible alternative energy mix might look like, with nuclear identified as the only viable firm, low-carbon power source.

The Institute of Economic Affairs is a registered educational charity. It does not endorse or give support for any political party in the UK or elsewhere. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The views represented here are those of the speakers alone, not those of the Institute, its Managing Trustees, Academic Advisory Council members or senior staff.

Britain’s economic record over the past decade and a half makes for uncomfortable reading. Productivity growth has flatlined. Real wages have barely recovered from the 2008 crash. The tax burden is at its highest since the post-war era. The welfare and pensions bills keep climbing. Meanwhile debates over free speech, crime, and immigration continue to divide the political and policy debate.

But is Britain really broken? Are we witnessing temporary policy failures while the overarching story is more positive, or is something deeper going wrong? And crucially: what, if anything, can be done about it?

Join us for this exclusive event, bringing together voices from across the debate, to discuss these issues in the heart of Westminster.

Paid IEA Insider subscribers can register below now.

Read more

-Friedrich August von Hayek (1960)

“Freedom is a fragile thing and it’s never more than one generation away from extinction. It is not ours by way of inheritance; it must be fought for and defended constantly by each generation”

-Ronald Reagan (1967)

Classic liberalism has one major disadvantage in the battle of ideas: it is counterintuitive. It consists of ideas that do not come naturally to us. Quite often, it even asks us to actively override our initial emotional reactions, impulses and gut feelings, and to think things through properly rather than go along with what “feels right”. You can be “instinctively socialist”; you can be “instinctively conservative”; but few people are “instinctively liberal”. What would it even mean to be “instinctively liberal”? At best, people can have an instinctive aversion to authority, but that, on its own, is more likely to lead to a juvenile libertinism than to a consistent liberalism. (Although some of our conservative critics would, of course, argue that that is exactly what classical liberalism is.)

But this major disadvantage also has one minor upside: it means that classical liberals have interesting stories to tell.

If you ask a socialist how they became a socialist, or a conservative how they became a conservative, the most likely answer will be: “I have always felt that way; I was just not able to articulate it, until I read X, or met Y, or joined Z.” Thus, most of their intellectual development will have consisted of finding post-hoc rationalisations for what they already believed. They will have started with the conclusions already largely formed, and then looked for ways to justify those conclusions in retrospect.

A classical liberal is much more likely to tell you a story involving some internal conflict, some agonising, some painful self-interrogation. There will also be much greater variability in their stories, with people coming at it through very different pathways. If you get a bunch of liberals into a room and ask them for their political “origin stories”, what you will get is bound to be both entertaining and informative.

A great example of that genre is the book The New Right Enlightenment: Young Authors on the Spectre That Haunts the Left (henceforth “TNRE”), published in 1985, on which this article series is modelled, and to which it is, in a sense, a sequel.

TNRE is a collection of essays by twenty people who were then up-and-coming thinkers of what was then called “the New Right”, in which they explain their political outlook, and how they got there. It was not technically an IEA publication, but it was commissioned and edited by Arthur Seldon, then Editorial Director at the IEA, and it contains several chapters from people who would later join the Institute in some capacity or other. I consider it an IEA publication, even if the IEA’s logo is not printed on the cover.

What Seldon et al meant by “the New Right” was essentially classical liberalism, although in hindsight, the title of the book was poorly chosen. According to Google Ngram Viewer, the use of the term “the New Right” peaked around the time TNRE was published, but then began to decline. It was also prone to misunderstandings, and even a lot of the authors of TNRE did not seem particularly happy with it.

Be that as it may: TNRE can be read as a mini-primer on the Austrian School of Economics, the Chicago School of Economics, the Virginia School or Public Choice School, and the political theories of Robert Nozick and Karl Popper. The added personal element – people reconstructing their own intellectual journeys – makes these abstract ideas more relatable, but it does this without being self-indulgent.

To the extent that TNRE is a primer of classical liberal ideas, it is a timeless classic. A present-day reader can easily forget, over long passages, that the book is over 40 years old. To the extent that it is about the authors’ personal intellectual journeys, though, it is quite clearly a product of its time, describing generation-specific experiences. Most of the authors of TNRE were Baby Boomers¹, the youngest ones were early cohorts of Generation X². There are no Millennial authors in TNRE, for the simple reason that the oldest Millennials³ were four years old when the book came out, while the bulk of them had not been born yet. The earliest cohorts of Generation Z⁴ would not be born for another 12 years.

Why does this matter? Would the experience of a budding liberal born 20, 30 or 40 years later than the authors of TNRE really be so fundamentally different from theirs?

In some important ways – yes, very much so. The political/ideological spectrum has changed quite a lot since 1985, the zeitgeist has changed, the way we engage with political ideas has changed, and the most salient issues of today are no longer those of 1985.

For a start, TNRE authors still used the old rule of thumb that a classical liberal is somebody who is “right-wing on economics; left-wing on social/cultural issues”. This is a reference to the “Nolan Chart” from the 1960s, which forms the basis of most versions of the political compass. As far as ultra-simplified rules of thumb go, it worked remarkably well for about half a century. But it presupposes a political Right which is interested in economic progress, and a political Left which is socially/culturally permissive. In the context of a NIMBY Right on the one hand, and a censorious “woke” Left on the other, the political compass no longer works in that way.

Related to that: while classical liberals were undoubtedly a minority in 1985, on an issue-by-issue basis, most of their opinions were not so unusual. What made classical liberals unusual was their package of opinions, and the consistency with which they applied them. Thus, the authors of TNRE did not have a general sense of political isolation. Rather, their experience was that wherever they went, they would find common ground with people on some issues, while provoking strong disagreement on others.

The policy challenges the country faces have also changed. The domestic backdrop to TNRE was Keynesian-interventionist postwar consensus, which was in the process of being rolled back by the Thatcher government, but that process was by no means complete at that stage. The international backdrop was the Cold War: none of the authors could have known that the Berlin Wall would not survive the decade.

Britain did not have a housing crisis yet, so the housing market and the planning constraints on supply are only mentioned once in TNRE. Immigration and Britain’s relationship with the EU are side issues; climate policy and transgenderism are not even that.

The way people engage with political ideas has changed even more radically. Twitter, Bluesky, YouTube, Twitch, TikTok – these things are not even imaginable yet. The only time technology is mentioned in TNRE as a means to spread political ideas is when one author proudly describes how he uses a computer to make political posters.

In short, there is a lot to be said for a present-day sequel to TNRE, written by Millennials and Zoomers, to talk about their intellectual journeys, and make classical liberal ideas relatable to members of their generation.

The title “Millennial Liberalism” is, of course, a response to “Millennial Socialism”. A lot of media stories have portrayed Millennials as a generation of Corbynites, and Gen Z as a generation of Polanskiites. Judging from opinion surveys, this portrayal is largely correct. But there is such a thing as a Millennial-Zoomer Liberalism too, even though it is clearly not a mass movement, it is not fashionable, and people will never chant “Ohhhhhhh Ludwig von Miiiiiiises” at Glastonbury.

The upside of this is that Millennial Liberals and Zoomer Liberals are among the brightest and most independent-minded members of their generations. These are people who have a genuine interest in ideas: unlike Millennial Socialists or Zoomer Socialists, they are not doing this in order to boost their social image. They are not going along with the fashions of the time, and they are not trying to fit in. The upside of ‘uncool’ ideas is that you can at least be sure that nobody ever adopts those ideas in order to ‘look cool’.

So I have asked some of those Millennial and Zoomer Liberals to tell me their stories, which is what they will do, in this article series. Unfortunately for me, I am slightly too old to qualify for a contribution of my own: I was born in 1980, which makes me part of the last cohort of Generation X. What I can do, though, is abuse my position as editor to say a few words about my own ideological journey here.

And you cannot stop me.

Like countless other people before and after me, I went through a typical “confused, clueless teenage commie” phase from about age 15 to 17 or 18. I had copies of the collected works of Marx, Engels and Lenin, but never made it past the first few pages, because it was difficult to read, and, like most Millennial and Zoomer Socialists today, I was much more drawn to the “rebellious”, “cool” image of socialism than to the actual ideological content. (I would, of course, have denied this at the time, and was genuinely unaware that that was what I was doing.) Still, while my ideological commitment was extremely superficial and ill-informed, it felt real, and it was not so easy to let go of.

At the age of 17 or 18, I started to develop a grudging appreciation of the market economy. I remember reading a booklet written by a liberal economics journalist which made an impression on me: Wundertüte Marktwirtschaft: Was kann sie leisten – was müssen wir leisten? (“The market economy as a goody bag: What can it achieve – and what do we have to achieve?”). It described basic economic concepts in extremely simple terms, one of them being Adam Smith’s “invisible hand” – the idea that, in a market economy, you can do things that benefit other people even if that is not your intention. You do not get rich simply by “being greedy”. In a market economy, economic transactions are voluntary. I cannot force you to trade with me. If I want some of your money, I need to offer you something that you want, and are prepared to pay for.

More: whatever it is that I am offering you, I am probably not the only one vying for your custom (or at least not for long). Others will try to do the same. I need to outcompete them. I need to offer you something better and/or cheaper than them. When one of my competitors comes up with a more appealing offer, I need to match that somehow.

This sounds trivial today. But it was a mind-blowing realisation for me at the time, because I started applying it to things I saw around me. I started noticing that pattern in real economic life. In particular:

Two years earlier, a regional brewery had launched a new style of beer. It turned out to be extremely popular, and other breweries tried to respond to it in various ways. As a budding beer enthusiast, I enjoyed the results of that competitive process, but I never once thought about why this was happening. More generally – I never once asked myself why, every time I set foot into a shop, the shelves were full of nice things offered at reasonable prices. To say that I took things for granted would be an understatement. All the good things that a modern market economy has to offer were, from my perspective, just somehow there. And that was it. That was early-stage Niemietzonomics. Everything is just somehow there.

Also around 1997 or 1998, I developed an interest in the postwar period, and especially the West German Wirtschaftswunder, the economic miracle that turned a war-torn wasteland into one of the most prosperous countries in the world. I knew from my grandparents’ anecdotes that things had not always been this way, but my theory for how things get better over time was analogous to my theory for how goods get into the shelves: they just somehow do.

Except, as I then learned, there was nothing “somehow” about it. The Wirtschaftswunder was the result of active political choices, which were controversial at the time. It started in 1948, when Business Secretary Ludwig Erhard abolished price controls overnight, and the shop windows started to fill up almost immediately. Erhard, who was influenced by a group of liberal economists (the original neoliberals or “Ordoliberals”), was initially very much in a minority with his pro-market views. The two largest parties – the Social Democrats (SPD) and the Christian Democrats (CDU) – both initially supported a semi-socialist economy with a raft of nationalised industries.

So, for a while, I was torn. I accepted the case for a market economy at a logical level, but my heart was not in it. The market economy seemed right, but it did not feel right.

I thought that a good solution to that inner conflict would be to become a social democrat. So in the Federal Election of September 1998, I voted for the SPD, a few weeks later, I joined the party. It seemed like a good compromise: the SPD was a left-wing party; they had Marxist roots which they still cherished in a nostalgic way, but they were also explicitly accepting of the market economy (and had been since 1959). The party had a proud history, which I found extremely appealing. Born out of the political struggles of the Bismarck era, they later became the bedrock of the ailing Weimar Republic, and in the Republic’s dying days, they were the last man standing against Hitler. I generally hate the expression “on the right side of history”, but in this case, for once, it just fits.

Still, joining them did not really resolve my inner conflict: it just transformed it. I soon learned that the party was torn between a market-friendly “Blairite” wing and a traditionalist left wing, and I found myself firmly on the side of the former. The left-wing of the party seemed overly emotional – indeed, childish – to me. For example, even though government spending at the time was about 48% of GDP, left-wingers were constantly warning about an imaginary “dismantling” of the welfare state.

They also had a tendency to unduly moralise economic outcomes and economic policy decisions. For example, many public sector programmes, such as the pension system, were running chronic deficits, which the Blairites wanted to close with modest spending cuts. Rather than presenting alternative plans, the Left denounced such plans as “socially unjust” and “unfair”. For me, these were not matters of fair vs unfair, or just vs unjust, at all. They were just matters of basic arithmetic. You cannot constantly spend more than you bring in. How is that not obvious? How is that even a discussion?

Or similarly in labour markets: unemployment was very high at the time, in part because a system of centralised collective bargaining prevented wages to vary with productivity. The Left did not accept that argument, claiming, instead, that it was “unfair” that people in less productive parts of the country should be paid less: they work just as hard! Some of them even thought it was “unfair” that East Germans earned less than West Germans, despite the obvious East-West productivity gap.

What estranged me from the Left was that I had started to think like an economist. I started to think of market outcomes as amoral signals of supply and demand, not as moral judgements.

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I attended local party meetings, where I was usually in a minority of one with those views. It became clear to me that while the party tolerated its market-friendly wing, they would never truly accept it. Their heart was not in it, and it never would be. After about a year, I started to accept that, as much as I liked my comrades on a personal level, I did not really belong in that party.

But where else to go? Defecting to the Right was completely out of the question for me. I may have become “economically right-wing”, but I still strongly rejected social conservatism and nationalism. The aforementioned Nolan Chart may have been past its prime, but around the turn of the Millennium, it still worked perfectly for me. I was economically right-wing, but socially and culturally left-wing.

There was, of course, a party which occupied that quadrant of the Nolan Chart, and that was the liberal Free Democratic Party (FDP). In early 2000, I reluctantly defected to them, still insisting that I remained a bit of a Leftie, and that it was specifically the party’s left-liberal wing that I identified with.

Those were also the early days of online discussion forums, a forerunner of what we now call “social media”. Each party had its own forum, and, then as now, the extremes were heavily overrepresented. The conservative forum had its fair share of far-right nationalists, the social democratic forum had its fair share of literal communists, and the liberal forum… well, they had the libertarians.

I did not like those people at all, the libertarians. They were arrogant. They were elitist. They came across as lacking in empathy. But they were really challenging to argue with. They were smart, they were knowledgeable, and they were infuriatingly consistent. They did not win me over, but I found them interesting enough to look up some of the names I picked up from them, such as Milton Friedman, Friedrich August von Hayek, and Ludwig von Mises.

I finished school in June 2000, and then relocated from the state of Rhineland-Palatinate to the state of Bavaria to do my National Service. It was not a bad experience overall, but it was not exactly intellectually stimulating, so I decided to fill that gap by reading up on libertarianism. Some books were available from the liberal Friedrich Naumann Foundation, others from an online bookstore called “Amazon” which I had recently discovered. The early Austrian School types wrote in German, which was neat, but Milton Friedman, rather inconsiderately, did not. There were German translations of his books, but they had tiny print runs, and were impossible to get hold of. (Needless to say, every word Naomi Klein or Noam Chomsky ever uttered was instantly translated, and available everywhere.) Armed only with school English, reading Friedman in the original was a pain. But by then, I was sufficiently captivated by the ideas to keep going.

I cannot remember at what point I realised that I had moved over from left-liberalism to libertarianism. There was no single breakthrough, just a series of realisations that I was wrong about many things.

An example is the welfare state. I believed that the state was generally a bad entrepreneur, and that a competitive marketplace was a better way to provide goods and services. But for a long time, it just did not occur to me to expand that kind of thinking to social protection and welfare services. It did not occur to me to think of the welfare state as essentially a nationalised industry, providing services which, in the main, could also be privately provided.

I also developed an interest in real-world approximations of free-market reforms. I read about Thatcherism, Reaganomics and “Rogernomics”.

After National Service, I spent the spring and summer of 2001 travelling through Central America. Although I loved the region, I was also shocked by the poverty and underdevelopment I saw there, and became more interested in Development Economics as a result. I was particularly drawn to successful examples of countries that had recently grown out of poverty, and it was in this context that I learned about Hong Kong, Singapore, and Chile. I came to the conclusion that, while there were no pure libertarian development models, opening up and liberalising the economy was indispensable for escaping poverty. Naturally, this led me to believe that globalisation was the best thing ever.

It was the worst possible time to come to that conclusion. In October 2001, I moved to Berlin, to study Economics at the Humboldt University. It was the heyday of the anti-globalisation movement. They were all the rage on campus, and impossible to avoid.

I hated them.

They were frustrating to argue with, because they had that typical left-wing combination of ignorance and over-confidence, mixed with a strong sense of imaginary moral superiority.

Another peculiarity of Berlin in those days – just over a decade had passed since German Reunification – was that you could still very easily tell whether you were in the East or in the West. Eastern and Western Germany were still, in lots of ways, two different countries, and nowhere was this more obvious than in Berlin.

As much as I hated socialism as an ideology, I was also weirdly attracted to East Berlin’s frozen-in-time dystopian vibe.

But it was not just vibes. At the time, people did not yet treat the late-stage GDR, the fall of the Berlin Wall, and the process of reunification, as “history”. It was still, in the broadest sense, “the present”, and a frequent topic of conversation. They talked about it in the way British people today would talk about Brexit: yes, a few years have passed, but it’s not over, and it feels far to recent to be “history”.

The standard opinion was that the GDR represented a perverted version of socialism, which had lost touch with the original Marxist ideals. Describing the failure of the GDR as a failure of socialism was considered the most cringeworthy thing a person could possibly say: a surefire way to out oneself as a complete ignoramus. Attitudes to socialism were treated as an implicit IQ test: dumb people judge socialism by its real-world outcomes, smart people judge it by its original intentions. (Needless to say, I was already one of the dumbest of the dumb people even then, and I have only become dumber in the meantime.)

Otherwise, I discovered the books of Murray Rothbard and David Friedman, and was flirting with those more radical versions of libertarianism for a while. I had also started to write for a small libertarian magazine, eigentümlich frei. My ultra-libertarian phase was short-lived, though, and in the mid-2000s, I reverted to a more conventional Hayekian liberalism.

Berlin is a very, very left-wing city. Nonetheless, I managed to track down the city’s 12 or so classical liberals, and gathered them at the Libertärer Stammtisch (=the libertarian regular’s table or meetup group, held at a pub in central Berlin). It must have been through them that I became aware of the Institute for Free Enterprise (IUF), a tiny free-market think tank that was just being formed. In May 2006, they organised a conference on free-market economics with speakers from around the world. One of the speakers was a Brit, who represented an organisation called the “Institute of Economic Affairs”.

-“He talks a lot of sense”, I remember saying to the chap next to me. “Any idea what that organisation is?”

-“What, the IEA? Oh yes! They’re great! They were the ones who prepared the ground for the Thatcher revolution, in the 1970s.”

-“Sounds interesting”, I said. “Think I’ll send them a CV, and apply for an internship there.”

The conversation digs into the polling that defines the moment. More than one in three young Britons hold a positive view of communism, two-thirds back BLM, and around half favour reparations for the transatlantic slave trade. Kristian argues this is not boomer slop from the right wing press but the sincere answers of millions of young people, and he dispels the comforting myth that this generation will grow out of it. The data shows older millennials in their early 40s already think indistinguishably from teenagers, meaning the traditional rightward drift with age has effectively stalled.

Callum and Kristian also explore why the old left-right map no longer fits, with progressives driving cancel culture and the British right increasingly defined by NIMBYism and a refusal to build anything. They discuss what unites today’s young classical liberals with the boomer-era thinkers who came before them, the intellectual sources they still draw on from the Chicago and Austrian schools to Robert Nozick, and what gives Kristian hope that liberalism can survive as one credible option among many, even if it never becomes the majority view.

The Institute of Economic Affairs is a registered educational charity. It does not endorse or give support for any political party in the UK or elsewhere. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The views represented here are those of the speakers alone, not those of the Institute, its Managing Trustees, Academic Advisory Council members or senior staff.

I think there should be more of those, though, especially for hyper-topical books. After two to three years, you can sift a lot of the chaff from the wheat. You can see which books were purely catering to the mood of the moment, and which made a more lasting contribution.

James O’Brien’s book How They Broke Britain was released as a paperback almost exactly two years ago, with the hardcover version half a year earlier. Reading it now, I think even someone sympathetic to Mr O’Brien’s view of the world, such as it is, will have to admit that this book is all chaff, and no wheat.

When I say that How They Broke Britain is a bad book, this is not simply my way of saying ‘I don’t agree with it’. I don’t judge books primarily on that basis (although the temptation is admittedly sometimes hard to resist). I have, for example, previously recommended the book Slavery, Capitalism and the Industrial Revolution by Maxine Berg and Pat Hudson on the IEA Blog, despite the fact that it is clearly an attempt to rehabilitate the Marxist ‘Williams Thesis’. Since the Williams Thesis – the idea that Britain’s Industrial Revolution was financed by profits from the slave trade – is wrong, the attempt to rehabilitate it is also wrong. But this is a book which you can judge by criteria other than ‘Is the book’s central thesis correct?’, such as ‘Did I learn things from this book that I did not previously know?’, or ‘Can I use this as a source of factual information, even if I draw very different conclusions from that information?’

How They Broke Britain is very much not that kind of book. It is more like a written version of one of James O’Brien trademark angry monologues on his LBC show.

Let’s start with the ‘broken Britain’ diagnosis. Left-wing commentators are often good at identifying problems, even if I’m rarely convinced by their solutions. James O’Brien cannot even get that right. He cannot even properly explain what he means when he says that Britain is ‘broken’. Is this about the British economy? Is it about social indicators? Is it about the state of our public services? Is it about social cohesion? It seems to be a bit of all of the above: in the introduction, O’Brien runs us through what looks like a collection of negative news stories. But this everything-is-awful kitchen sink approach doesn’t add up to an assessment of the state of the country. In what way is Britain ‘broken’? Broken compared to what? Broken compared to when? Broken compared to whom? What would an un-broken Britain look like? What would be a better alternative?

These are not minor details. Bear in mind that the political mood in 2023 and 2024 was one of relentless pessimism and negativity. I couldn’t name a single commentator, of whatever political persuasion, who would have argued that Britain was in good shape at the time, and that we should just keep doing what we were doing then. When everyone thinks things are bad, publishing another book which says ‘Things Are Bad’ is not much of a contribution. In such a context, you need to be more specific. You are not arguing against someone who thinks everything is fine, because no such person existed in Britain in 2023 or 2024.

Not even the then government’s few remaining supporters (the Conservative Party was hovering around 20% in the polls) would have said that. When a political party has been in government for an extended period, what usually happens is that one wing of the party gets its way more often than others, and then at least that wing of the party is happy with the results, even if the others are not. The Thatcherite wing of the Tory Party is generally happy to defend their party’s record in government from 1979 to 1997, because they identify with it, and ‘own’ it. Ditto the Blairite wing of the Labour Party, with regard to party’s record in government from 1997 to 2010. What is unusual about the 2010–2024 Tory government is that towards the end, every faction within the Tory Party seemed unhappy with it for a different reason. Those on the Right of the party were unhappy, because immigration had shot up to the highest levels ever recorded. Those on the Left of the party, meanwhile, were unhappy because they thought the party was becoming too ‘Faragist’ in rhetoric. Social conservatives were unhappy, because the party had done nothing to stop the ‘Great Awokening’. The socially liberal wing, meanwhile, didn’t like the ‘Culture War’ rhetoric that the party had adopted in response. The Thatcherite wing was unhappy, because neither public spending nor the tax burden nor public debt had come down, and there had been no notable economic liberalisations in those 14 years. But the ‘Mayite-Timothyite’, communitarian wing wasn’t happy either, because neither had there been a complete break with liberalism. And so on. This is what’s remarkable about Late-Stage Tory Britain: no particular political camp felt ‘ownership’ of Britain’s overall socioeconomic model. No particular political camp identified with the way things were going. Even East Germany still had a few defenders in 1990, who identified with the system, and who stood by it. Britain, in 2023/24, had no equivalent of that.

I was expecting James O’Brien to argue that Britain was in a bad place, because it had been hijacked by a bunch of small-state neoliberal/libertarian extremists such as the IEA, and yes, there is a bit of that in the book, but that’s not really his argument. A full-throttled attack on free-market economics would at least have given me something to work with. But O’Brien’s argument isn’t really that the state is too small, or that it doesn’t regulate enough. No: the book is mostly a criticism of the personalities and perceived character flaws of the people who were in government from 2010 to 2024, as well as the people in the media, the think tank sector etc who O’Brien perceives to be close to them. This is not a book about bad policies (other than, obviously, Brexit), it is a book about bad people. I’m sure O’Brien would protest against that characterisation: he would say that his book is not just about individual bad actors, but also about an ‘ecosystem’ that enables them. But by ‘ecosystem’, he also means ‘bad people’. So that’s really all this is: a book about bad people, surrounded by other bad people, who enable them to do bad-people things.

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That’s James O’Brien’s entire theory of governance: when you have Bad People in charge, bad things happen. Not because Bad People do specific, identifiable bad things that can be shown to have specific, identifiable negative impacts. No – the Bad People just sit there, and emit bad vibes. And then everything is bad.

The problem with the Bad Vibes Theory of Governance is that countries have often done quite well, in important respects, despite having Bad People with Bad Vibes in charge. Donald Trump, I think it’s safe to say, has all the negative characteristics which O’Brien attributes to British politicians on the Right and their imagined ‘ecosystem’, and in spades. Yet despite all that, the US has been doing quite well on measures that policy could realistically influence. For example, between 2015 and 2024, US real median household incomes grew by 15%, compared to a mere 6% in the UK. Poverty in the US fell by three percentage points over the same period. Even the number of people without health insurance, one of America’s long-standing problems, fell by 1.5m. Would these numbers have looked even better under a Clinton-style Democrat or a more Romney-style Republican? Probably, yes. Trump did not ‘cause’ these improvements – but neither did he stop them with his Bad Vibes, that’s my point. In the second half of the 20^th century, there were plenty of unsavoury governments in the world that I would not have wanted to live under, but which nonetheless oversaw remarkable economic progress, and all the benefits that flow from that. If you tried to build an economic model around the Good Vibes Theory, the empirical results would not be kind to it.

Conversely, Britain now has a government that O’Brien would broadly approve of, vibe-wise. In terms of measurable outcomes, remarkably little has changed, and if the OBR forecasts are to be believed, not much is going to.

Fine, O’Brien is not an economist, so maybe I’m looking at this in the wrong way. But as an account of recent political history, the book is just as worthless. Even bad people usually have something that motivates them. They don’t just get out of bed in the morning, thinking, ‘Today, I want to be double-extra-super-über-bad.’ They do things which make sense from their perspective, and on their terms. So what are those? Sure, O’Brien thinks a lot of our political figures are simply stupid, so he thinks there isn’t much going on between their ears that needs explaining. But even a person who isn’t particularly bright can still have a worldview which they get instinctively, and they will have smarter thinkers behind them which have influenced them. It is possible to explain where people are coming from even if you thoroughly disapprove. People have done this writing about the motivations of Hitler, Stalin and Osama Bin Laden, so I’m sure it’s possible to try to imagine why someone might support Brexit. (In case it matters: I’m not a Brexiteer myself.)

The only chapter which does a little bit of that is the one on Dominic Cummings. O’Brien is clearly intrigued by Cummings. He sees him as neither stupid, nor obviously evil, and that puzzles him: how can a non-stupid, non-evil man support stupid, evil things? Why isn’t he on James O’Brien’s side, like all the smart and good people in the world?

But those passages are very much the exception, and even they remain at a fairly superficial level. James O’Brien has zero intellectual curiosity, which is not a good starting point for a book like this. While we can probably all agree that 2010–2024 was not Britain’s finest period, it was nonetheless a fascinating period, a period of real ideological clashes and realignments. In order to write insightfully about such a period, you need some intellectual inquisitiveness; you need to be the sort of person who wants to know why people think the way they think, no matter how wrong they may be.

James O’Brien has none of those qualities. All he has is a lot of rage, and a strong sense of moral and intellectual superiority. Where he is getting that sense from, I’d really like to know, because there is nothing in the pages of this book which would justify it.