All of us tend to interpret political events as confirming our prior beliefs. We must, however, resist this temptation when thinking about the now-reversed Kwarteng/Truss Budget. There are two interpretations of this fiasco which are not as robust as you might think.

The first one is that it shows that small state conservatism is impossible. I don't think this inference is warranted.

Imagine that Budget had been announced at a time of recession when inflation was below target and both short and long-term interest rates near zero. In such circumstances, I suspect markets would applaud: looser fiscal policy is the right thing to do then - as many of us were saying in 2010-12. Yes, bond yields would rise - but that's natural and desirable as a consequence of escaping recession, and it's possible that gilt losses would be accompanied by share price rises.

Of course, we would quibble with the redistributive impact of cuts to top taxes, and we'd argue that spending rises would be better at reflating the economy than tax cuts. But in macroeconomic terms, the Kwarteng-Truss Budget would have been acceptable.

And a few years after the Budget, Kwarteng/Truss could claim not only that they had averted recession, but also that subsequent growth had been good. Yes, orthodox economists would reply that this was due more to standard accelerator effects and diminished uncertainty than to supply-side effects of tax cuts. But that's the point: we would be debating whether tax cuts had worked. We wouldn't be claiming that the Kwarteng/Truss approach had been refuted.

This counterfactual tells us that the fatal flaw in the Kwarteng/Truss Budget was its macroeconomic judgement, not its supply-side measures.

Let's try another counterfactual. Imagine their Budget had been announced after a positive supply shock - something that had both boosted growth and reduced inflation. Tax cuts would then look "affordable", because the stronger economy had reduced government borrowing. Nobody would panic. The way to shrink the state, remember, is to have a strong economy.

What would such a supply shock be? One candidate would be sharp reversal of this year's oil and gas price rises. The right, however, might add another candidate: non-fiscal supply-side measures such as planning reform. On that view, the Kwarteng/Truss error has been to do policy in the wrong order: tax cuts should have followed other supply-side policies, not preceded them.

Now, personally I am of course very sceptical that cuts to top tax rates would greatly stimulate the supply-side. But this scepticism is not enhanced by the Tories' latest fiasco. What this proves is that their macroeconomic and market judgement is atrocious. It does not prove that rightist supply-side measures are always doomed to fail. To establish that, you need other evidence.

There is another hypothesis which I think is unproven by recent events. This is that, contrary to the claim of modern monetary theory, bond markets are in themselves a constraint on government borrowing.

My problem with this idea is that we've seen bonds sell off at a time of high inflation. It is possible that what gilt markets are worried about, therefore, is not a flood of issuance but simply that tax cuts will further add to inflation. On this view, MMTers are right. It is indeed inflation that is the constraint upon government borrowing. Bond markets are merely a mechanism through which this constraint becomes obvious to government.

Of course, something would refute MMT - if we were seeing bonds sell off at a time of low inflation. But this is not what's happening.

There is, however, a wrinkle here. What we've seen since the summer is not just a rise in nominal gilt yields but also a sharp rise in real ones too. You might think this consistent with the market fearing a glut of debt, not just inflation - that markets are, in Paul Krugman's words, pricing in a "moron risk premium."

Possibly, but not certainly.

For one thing, this risk premium might reflect not the quantity of debt but rather the manner of conducting policy: in sacking Sir Tom Scholar and sidelining the OBR, Kwarteng/Truss signalled that they were heedless of dissonant voices. That's just bad policy-making.

For another, higher real yields are themselves a sign the markets fear inflation. Real yields are higher because markets expect higher real short-term interest rates. Which is just what should happen as the Bank tries to reduce inflation.

And for a third thing, even now real yields are well below their 1990s levels. In a longer-term context the bond market vigilantes are still softies.

This issue matters for how the left should think about fiscal policy. If the problem is indeed too much borrowing then there might be a case for wealth taxes merely to raise revenue. If, however, the problem is inflation then wealth taxes are a less good solution: insofar as the rich don't spend their wealth, such taxes won't much reduce inflation.

My point here is to try to lean against the old habit of seeing our prejudices confirmed everywhere. Macroeconomics and politics are often afflicted with the Duhem-Quine problem, that hypotheses can never be tested in isolation. Recent events do not prove that small-state supply-side policies are impossible, and nor do they prove that the bond market and not inflation is the constraint upon borrowing. Maybe they are, maybe not - but this fiasco does not establish so much.

Instead, it proves just one thing - that the Tory reputation for economic competence was not justified. And perhaps it never was.