The implosion of the Tory party suggests I was wrong.

I had thought that economic stagnation - which has seen real wages fall below 2007 levels - would benefit the Tories. As Ben Friedman showed, a weak economy leads to illiberalism and reactionary politics which creates a constituency for culture war politics and attacks on migrants, "wokesters" and the EU. Also, the low real interest rates caused by stagnation sustain house prices thus giving older home-owners an illusion of wealth, whilst at the same time boosting the profits of some financiers who back the Tory party.

This seemed to be the case until recently: the Tories led Labour in the polls until this year, and even in the summer had only a small deficit. But no longer. Labour now has a 30pp lead, predicting the wipeout of the Tory party at the next election.

So what changed?

Putin, that's what. His invasion of Ukraine caused energy prices to soar, with the result that the cost of living crisis increased in salience, whilst culture wars diminished. Which has revealed a division in the Tory party.

This division arises from a brute economic fact. You can have both low taxes and decent public services only if you have a strong economy: history tells us that the shares of taxes and state spending in GDP are driven more by economic fluctuations than by government ideology.

Fifteen years of economic stagnation therefore forces Tories to choose: you can have tax cuts, or you can avoid cuts to welfare benefits and public services. But you cannot have both.

For years, the Tories have dodged this question by talking little about economics and more about culture wars, of which Brexit is a part. That is now no longer an option: those Tory MPs who moan about migrants and Harry Potter courses at universities merely embarrass themselves.

Kwarteng tried to dodge this question by pretending that tax cuts would stimulate growth or that the government could easily borrow to cut taxes. Neither claim survived more than a few days.

For one thing, there is little (pdf) evidence that lower taxes do stimulate growth. The UK economy grew much better when the Kinks
complained that "the taxman's taken all my dough" than it did in the years after Nigella's dad cut the top rate to 40%*.

And for another, government borrowing has gotten more expensive: five-year nominal yields have jumped from 0.8% to over 4% so far this year. That's partly because of a rise in global yields, and partly because we are now closer to full employment and the point at which looser fiscal policy leads to inflation rather than real growth. It's also because the government has reduced confidence in UK assets by sacking Sir Tom Scholar and sidelining the OBR; the US can afford to elect a braindead ideologue because it has exorbitant privilege but the UK cannot be so cavalier about international perceptions and so doesn't have that option.

The Tory dilemma is therefore acute: tax cuts or public services? Of course, many Tories have an ideological instinct for tax cuts. But they also have a predilection for "sound finance" and - even more so - for getting elected. And with voters not wanting a smaller state (pdf) they cannot have all three.

Let's be clear, though. The issue here is not only ideology and electoral considerations. Underpinning it is 15 years of economic stagnation. Just as poverty-stricken individuals face horrible choices, so too do countries. In fairness to them, Truss and Kwarteng realize this - hence their concern to raise economic growth. Sadly, though, they are unaware that achieving this requires years of hard slog and that the enemies of growth exist in their own party - in Brexiteers, nimbys and financiers and rentiers who benefit from the low interest rates that stagnation usually brings.

The Tories had the luck or skill to avoid these choices for years by fostering culture wars, which led me to think stagnation would continue to benefit them. I was wrong, because economics has now become the centre of party politics again. Tory divisions and unpopularity are not just the unfortunate result of having profoundly inadequate personnel. They are the product of underlying economic forces.

* Between 1948 and 1971 (when the top income tax rate averaged 90%) UK real GDP grew by an average of 3.3% a year: since 1988, when it was cut to 40%, it has grown only 1.9%.

Another thing. All this, I think, is an example of a point the great Jon Elster made in Nuts and Bolts for the Social Sciences. The social sciences, he wrote, are a box of mechanisms. But we often cannot foretell which mechanism will operate more strongly. So whilst there are some mechanisms linking stagnation to Tories thriving, there are others linking it to their demise. What we've seen is a shift from one to the other. As Elster wrote, "sometimes we can explain without being able to predict." (Personally, I don't see this as a great defect in the social sciences - but that's another story.)