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Liz Truss speaks on Downing Street, as she resigns as Prime Minister of The United Kingdom on Oct. 20.Dan Kitwood/Getty Images

David Blanchflower is an economics professor at Dartmouth College and has sat on the Bank of England’s monetary policy committee.

The big story this week is that Liz Truss, the disastrously incompetent British Prime Minister, was essentially ejected by her own party from the position. The country’s fourth head of government in six years resigned after only 45 days in office, which is the shortest tenure in the past 300 years – beating George Canning, who lasted 119 days before dying of a heart attack. Prior to Ms. Truss’s downfall, betting markets on how long she would last compared with a head of lettuce had opened, and Britain became an international laughing stock.

The concern is that Ms. Truss’s premiership has produced long-term damage to the country. The causation is clear: The political chaos followed directly from economic amateur hour. Britain has experienced a rise in the cost of borrowing, dubbed the “moron premium.” This has global implications as it suggests that markets, including those in Canada, are much more fragile than was previously thought as interest rates rise.

The chaos had started early on under the new Truss government when the senior civil servant at the Treasury was fired, along with an announcement that the budget that was to come wouldn’t be examined by the fiscal watchdog created by the Tories in 2010. Plus, there was to be money to reduce energy-price rises that the Prime Minister had opposed in her campaign. The International Monetary Fund came out against that policy for being too regressive.

It was never clear what the rush was on Friday Sept. 23, when a mini-budget that cut the top rate of income and corporate taxes, and scrapped a cap on bankers’ bonuses, was announced. At play were trickle-down economics, supported by a bunch of shady free-market think tanks such as the Institute of Economic Affairs, which continues to refuse to identify their funders. This splurge was to be funded by a massive rise in borrowing.

Tom Rachman: Liz Truss leaves in disgrace, while Britain is left to despair

Markets immediately reacted badly. Matters were made worse over that weekend when new chancellor Kwasi Kwarteng – subsequently nicknamed “KamiKwasi” – committed a schoolboy error, saying more tax cuts were to come. The pound dropped through the floor, at one point reaching US$1.03 the following Monday, and bond yields rose. Pension funds were close to collapse and there was a fire sale of assets such that the Bank of England had to step in to rescue them. On Tuesday, most mortgage lenders withdrew their products as they were unable to price them.

U-turns followed, and Mr. Kwarteng was ultimately sacked last week. Jeremy Hunt was appointed as Chancellor, the fifth since 2020. He scrapped all the remaining measures that Ms. Truss hadn’t already reversed. I called this the economics of pandemonium.

To add insult to injury, it didn’t help that a decade ago, Mr. Kwarteng and Ms. Truss wrote a book together, Britannia Unchained, where they argued that British workers were among the worst idlers in the world. Now, mortgage costs are high, and ordinary people are struggling to pay their bills. Visits to food banks are exploding as the country heads toward a deep recession with inflation running in double digits. Tax cuts for the rich have rubbed salt into the wounds.

This instability that Ms. Truss has set off might spread around the world. That is so not just because of the interconnectedness of the global economy, but also the knife’s edge that it is on, dealing with both raging war and soaring prices.

Central banks are now raising rates to deal with high inflation. They are all hoping that their rate rises will result in soft landings with limited unemployment, spending and growth consequences. The concern is that the landing may be hard.

In 2008, the collapse in the Florida housing market spread around the world, generating a global recession. The same thing happened in the 1920s, resulting in the Great Crash followed by the Great Depression.

And even as government bonds had started to rise with Ms. Truss now out of 10 Downing St., the gains pared on Friday as her predecessor, Boris Johnson, could return to the leadership plate.

A Pandora’s box has been opened, and Ms. Truss’s legacy of ruin and chaos will endure – for what we have seen in Britain cannot be easily contained.