Laissez-Faire Capitalism Does Not Work

[u/Canofair8300]

In 2022, the UK government under Liz Truss introduced a huge program of tax cuts, particularly for businesses and higher earners, alongside plans for deregulation and supply-side reform. The idea was that lower taxes and less government intervention would stimulate economic growth.

Instead, it caused turmoil in financial markets. The pound plunged against the dollar, collapsing to an all-time low against the US dollar (nearly hitting parity at $1.03). The cost of living soured, and mortgage rates rose. Banks were eventually forced to intervene in the gilt market to halt a catastrophic “doom loop” and prevent further financial instability. To prevent the systematic collapse of the UK economy, banks were forced to launch a £65 billion emergency bond-buying program to artificially stabilize the market.

The long term impact was also that when mortgages returned, interest rates were drastically higher. Millions of UK homeowners faced surging monthly repayments, with average annual mortgage costs projected to spike by up to £5,100 per family.

The government then rapidly reversed nearly all of the tax cuts and deregulations. Truss’s Chancellor was fired, her economic free market program was abandoned, and after just 49 days, Truss resigned as Prime Minister, becoming the shortest serving PM in British history.

So maybe laissez-faire capitalism doesn’t work after all. Cut taxes, reduce government intervention, and you get a collapsing currency, soaring borrowing costs and market prices, financial instability and, eventually, the government having to intervene to save the financial system.

Maybe markets aren’t capable of “regulating themselves“ after all.

[u/StedeBonnet1]

She was only in office 49 days hardly enough time for a tax cut to work. The leftists won but it wasn't because of the tax cut and supply side reforms didn't work.

Trump applied the same concept in 2017 and it worked. Revenue to the govenment increased 65% from 2017 t0 2024. He continued the concept in 2024 by blocking the expiration of the 2017 tax cuts and the economy is booming. Shame on the UK leftists for not allowing it to work

[u/Czeslaw_Meyer]

I can't see how that is supposed to have any connection.

The UK being hatdly capable of remaining a country for at least 20 years might more at fault.

[u/BaronBurdens]

The only concrete thing that you described was the tax cuts. Accelerating government deficit-spending is not laissez-faire capitalism. This probably explains why the gilt market gets some of your headlines.

If a government cuts taxes and not spending, and the market for that government's bonds shows uncertainty, that, to me, is a market success.

[u/InterestingVoice6632]

What is the purpose of this post? Youre using a single example to disprove the legitimacy of an entire economic philosophy that has been around for hundreds of years, for which the countries that engage in become the most economically wealthy nations in the world.

When you wrote this, did you honestly think this would do anything?

[u/NewLeague6438]

You can’t have tax cuts without cutting down the massive government spending.

Sri lanka did tax cuts in 2019 and became a reason for going bankrupt in 2019. What they failed was to cut the massive spending by government on subsidies and even such as salaries state sector employees, where 1 in 20 is a government sector worker and so many of the appointments are for political supporters.

[u/CaptainAmerica-1989]

Ummm, supply side economic reforms in a small case scenario isn’t an example of Laissez-faire capitalism, imo.

The best example I can think of are earlier colonial periods on the America Continent and other such similar experiments such as Australia. I hesitate on the others because my historical focus has been on the Americas.

[u/BonFemmes]

Markets can adjust to regulation. It is hard for them to adjust to constantly changing regulation. On again / off again tariffs are even more disruptive than tariffs. On again / off again support for various industries etc.