Tabloids and the abuse of power

Why there should be a full judicial inquiry into phone hacking.

Anyone caught up in a significant news story from the advent of mobile telephones in the late 1990s to the arrest of Clive Goodman in 2006, and perhaps for some time afterwards, may well have had their phone messages hacked into by tabloid journalists or those working on their behalf. This is because the tabloids had the power to do this, and it is clear this power was widely abused

It would also appear that political pressure was applied to ensure that this activity was never properly investigated. For some unknown reason the Metropolitan Police narrowed and then closed down any competent investigation of this activity when it first came to light. Had the scandal not involved members of the Royal Household, there may have been no prosecutions at all. It is a curious thing - and not, in this instance, an unwelcome one - that the monarchy still has some practical use in public life. It is difficult to bully the Crown.

Power always tends to get abused, and those with absolute power will (logically) face no checks on their abuses. In the view of many people, the trade unions abused their power in the 1960s and 1970s. Others would say that the police have also long abused powers, especially in Northern Ireland in the 1970s, the inner cities and on picket lines in the 1980s, and in respect of public order and "anti-terrorism" matters since 9/11. And there are many other examples, from bankers to libel litigants. Those who have power - especially absolute power in a given situation - will tend to abuse it for the same reason dogs lick themselves: simply because they can.

And because any person can abuse power, there always needs to be checks. The partisan will want the checks only to be for the "other side". Indeed, one good test of partisanship is whether it is openly accepted "your side" can also abuse power, and that it is crucially important to deal with this. The genius of George Orwell and others is their candour that even progressive and well-meaning people need to be held accountable too, whatever the slogans or legitimising constituencies invoked.

There are those who believe the police can do no wrong, or that trade unions can never be faulted. There are even those who will contend that bankers are simply misunderstood. Often this selective blindness comes from some ideological fixation: "they protect the public", "they represent their members", or "the market cannot be bucked". For defenders of the tabloids it will be "freedom of the press" or "giving the public what they want". There is almost always some greater good which is supposedly being served when someone is abusing their power. It is rare, and somehow more frightening, when a figure like Orwell's O'Brien expressly abuses power for its own sake.

Bullying is when the abuse of power is accompanied - or even made possible - by fear. The fear then prevents checks being used, or created to begin with. This fear may be a selfish and personal one: what can the bully do to me? Or it may be a perfectly understandable fear of what would happen to others, whether it be one's family or one's fellow citizens.

What seems to have happened over the last week or two is that some of the fear of tabloids has gone from more politicans. That is good and refreshing, and it is certainly a start. We may have even tipped off that very point where others will now break cover. But such a welcome change of mood may not last, and it actually achieves nothing by itself. What needs to be looked at are effective checks so as to prevent abuses ever happening again.

There needs to be a full and independent judicial inquiry into the whole sordid and sorry mess of tabloid phone hacking, and this inquiry should be open with the evidence (as far as it can be) placed in the public domain. Witnesses should be on oath, and there should be the power to compel evidence. As long as it is managed carefully by a senior judge, there is no necessary reason why it cannot start before the end of any criminal proceedings. We should not have to wait nearly two years or so.

Abuses of power and bullying by any person will corrupt any liberal democracy. But there is an opportunity now to bring one form of bullying to an end, and to seek to prevent the privacy abuses of the tabloids recurring. So please do support the new campaign for a full judicial inquiry, and sign the petition here.

 

David Allen Green is legal correspondent of the New Statesman

David Allen Green is legal correspondent of the New Statesman and author of the Jack of Kent blog.

His legal journalism has included popularising the Simon Singh libel case and discrediting the Julian Assange myths about his extradition case.  His uncovering of the Nightjack email hack by the Times was described as "masterly analysis" by Lord Justice Leveson.

David is also a solicitor and was successful in the "Twitterjoketrial" appeal at the High Court.

(Nothing on this blog constitutes legal advice.)

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?