"The opposite of a sovereign debt crisis"

Being paid to look after money isn't what governments ought to be doing.

Business Insider's Joe Weisenthal has written a blogpost which is doing the rounds at the moment, in which he argues that the world is experiencing the opposite of a sovereign debt crisis:

The problems of Spain, Italy, and Greece are often pointed to as being somehow bleeding-edge, canaries in the coalmine that serve as warnings to other governments of what might happen if they don't get their acts together.

But the real story today is just the opposite. The world is experiencing whatever the reverse of a sovereign debt crisis is, as borrowing costs for government are plummeting EVERYWHERE. . .

What this essentially means is that there's a lot of money out there that sees no productive investments in the real world, and thus people are willing to stick it with entities that promise them a very meager return.

The whole piece is great, with compelling charts and stats, and is definitely worth a read.

As government yields hit zero or lower, conventional economic realities fall apart. Jonathan Portes has written about the possibility of financing a £30bn infrastructure program using just the income brought in by the now-defunct pasty tax, while Matt Yglesias has arguedfrequently –  that when real interest rates are negative, it simply makes no sense to collect taxes.

It isn't just governments facing unusual situations in a world of free money. Google's chariman Eric Schmidt was faced with the reality of his company's situation in a debate with tech investor Peter Thiel:

ADAM LASHINSKY (Moderator): You have $50 billion at Google, why don't you spend it on doing more in tech, or are you out of ideas? And I think Google does more than most companies. You're trying to do things with self-driving cars and supposedly with asteroid mining, although maybe that's just part of the propaganda ministry. And you're doing more than Microsoft, or Apple, or a lot of these other companies. Amazon is the only one, in my mind, of the big tech companies that's actually reinvesting all its money, that has enough of a vision of the future that they're actually able to reinvest all their profits.

ERIC SCHMIDT: They make less profit than Google does.

PETER THIEL: But, if we're living in an accelerating technological world, and you have zero percent interest rates in the background, you should be able to invest all of your money in things that will return it many times over, and the fact that you're out of ideas, maybe it's a political problem, the government has outlawed things. But, it still is a problem. . .

ERIC SCHMIDT: What you discover in running these companies is that there are limits that are not cash. There are limits of recruiting, limits of real estate, regulatory limits as Peter points out. There are many, many such limits. And anything that we can do to reduce those limits is a good idea.

PETER THIEL: But, then the intellectually honest thing to do would be to say that Google is no longer a technology company, that it's basically – it's a search engine. The search technology was developed a decade ago. It's a bet that there will be no one else who will come up with a better search technology. So, you invest in Google, because you're betting against technological innovation in search. And it's like a bank that generates enormous cash flows every year, but you can't issue a dividend, because the day you take that $30 billion and send it back to people you're admitting that you're no longer a technology company. That's why Microsoft can't return its money. That's why all these companies are building up hordes of cash, because they don't know what to do with it, but they don't want to admit they're no longer tech companies.

What we are seeing is two sides of the same coin. When companies like Google – which, as Lashinsky says, is one of the biggest fans of blue-sky innovation in Silicon Valley – can't find anything to spend their war chests on, then they have to keep them somewhere. Banks are, for the first time in a generation, perceived as risky, so they turn to sovereigns, thus driving yields even lower.

The problem is, since these companies are looking for safety rather than income, yields have a lot further to fall. How much will Google pay for a safe place to keep its money? We don't know. But it's likely to be a lot more than a measly 0.3 per cent.

Google CEO Eric Schmidt, who has the unfortunate problem of Too Much Money. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Prime Minister Jeremy Corbyn sitting down with President Bernie Sanders no longer sounds so outlandish

Both men have a certain authenticity and unpretentiousness that their rivals lack.

Unlike many of us, Bernie Sanders never doubted Jeremy Corbyn. The week before the general election, the independent US senator from Vermont was addressing a crowd of progressive voters in Brighton during a whirlwind tour of the UK. An audience member asked him what advice he might have for the leader of the Labour Party. “I don’t think Jeremy Corbyn needs my advice,” Sanders replied. “I think he’s doing quite well.”

The week after the election, a delighted Sanders invoked Corbyn’s election performance in a New York Times op-ed. “The British elections should be a lesson for the Democratic Party,” he wrote, urging the Democrats to stop holding on to an “overly cautious, centrist ideology” and explaining how “momentum shifted to Labour after it released a very progressive manifesto that generated much enthusiasm among young people and workers”.

Sanders and his growing movement in the United States offered more than mere rhetorical support for Corbyn.

With the help of former members of the senator’s presidential campaign team, Momentum – the grass-roots organisation set up to support and defend Corbyn in 2015 – ran 33 training sessions across the UK, preparing thousands of Labour activists.

Momentum’s national organiser Emma Rees says that the Sanders people made a “significant contribution” to the Labour campaign with their emphasis “on having empathetic conversations that focused on the issues the voter cared about, and actually trying to persuade voters on the doorstep rather than just collecting data”.

“In the final stage, I recruited a bunch of former Bernie volunteers from around [the United States] to . . . help get out a last [get out the vote] texting assignment,” recalls Claire Sandberg, who was the digital organising director for Sanders and spent the 2017 election campaign working with Momentum in the UK. “It was an amazing thing to see them volunteering . . . while we were all asleep the night before election day.”

Is it really surprising that Sanders supporters, thousands of miles away, would want to volunteer for Corbyn? Both men are mavericks; both have a certain authenticity and unpretentiousness that their rivals lack; both, in the words of Emma Rees, “have inspired tens of thousands of people to participate in the political process and to realise their collective power” and they want “to transform society in the interests of ordinary people”. Perhaps above all else, both men have proved that left populism can win millions of votes.

According to the latest polls, if another election were held in the UK tomorrow, Corbyn would be the winner. Sanders, however, has a much higher mountain to climb in the US and faces at least three obstacles that the “British Bernie” does not.

First, Sanders leads a growing grass-roots movement but does not have the support of a party machine and infrastructure.

Corbyn may have been a backbench rebel who voted against his party whip more than 500 times before becoming party leader, but he is a lifelong Labour member.

Sanders, on the other hand, is the longest-serving independent politician in US congressional history. He declared himself a Democrat in 2015 only in order to seek the party’s presidential nomination and promptly declared himself an independent again after he was defeated by Hillary Clinton last summer.

Such behaviour has allowed establishment Democrats to portray him (wrongly) as an opportunist, an interloper who is using the Democratic Party as a vehicle for his own benefit in a country where third-party candidacies cannot succeed.

Second, Sanders has to confront an even more hostile and sceptical media than Corbyn must. Under US law, Fox News is under no obligation to be “fair and balanced” towards Sanders – nor is CNN, for that matter.

Thanks to the UK rules on broadcaster impartiality, however, Corbyn was “able to speak directly to the voters who still get their news from TV instead of the internet”, Sandberg notes. “In contrast, Bernie was completely and totally shut out by broadcast media in the US, which considered his campaign totally irrelevant.”

Third, Sanders failed to connect with minority groups, and especially with African Americans, whereas black and Asian British voters flocked to Corbyn – a veteran campaigner for the anti-racism movement.

Two out of every three ethnic-minority voters voted Labour on 8 June. “Bernie would’ve won [the Democratic nomination] if he’d had a message that resonated with 50 per cent – just 50 per cent – of black voters, because Hillary got upwards of 90 per cent in many states,” the activist and journalist Naomi Klein, who is a supporter of both Sanders and Corbyn, told me in a recent interview for my al-Jazeera English show, UpFront, which will air later this month.

Nevertheless, she is confident that Sanders can learn lessons from his own campaign for the 2016 Democratic nomination, and “build a winning coalition” next time which ties together the narratives of financial, racial and gender inequality.

Just as it was a mistake to write off Jeremy Corbyn, it would be wrong to dismiss Bernie Sanders.

Despite media bias, and even though he doesn’t have a party machine behind him, Sanders today is still the most popular politician in the United States. And so this may be only the beginning of a new, transatlantic partnership between the two self-declared socialists. Those of us on the left who grew up watching Reagan and Thatcher, then Clinton and Blair, then Bush and Blair, may wish to pinch ourselves to check we’re not dreaming.

“I think by 2021,” Sandberg says, “we may see Prime Minister Jeremy Corbyn sitting down with President Bernie Sanders.”

Don’t say you weren’t warned.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 22 June 2017 issue of the New Statesman, The zombie PM

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