When does licence become invention?

Johann Hari has gone one step too far.

We all do it -- journalists, historians, even human beings. We all tinker with the truth in order to create an actuality that feels more truthful than the truth itself. How many times have you deliberately misquoted someone in order to make that anecdote a little bit funnier? How many times have you retrospectively put words into your own mouth in order to banish an espirit d'escalier? How quickly "I wish I'd said" becomes "what I said"! In fact, claiming that you said something you meant to say is considered so acceptable that even MPs are allowed to edit their speeches in Hansard. The relationship between what actually happened and what we say that happened is a fraught one, as every police detective will tell you.

I'm having a similar problem with my current book project, which is a new history of the Great Escape. Some of the RAF officers' memoirs are at such a huge variance to what they told MI9 investigators after the war, that it is now almost impossible to even get near the truth. This isn't because they were liars (OK, a couple were), but because they had told the stories so many times, over so many decades, that the natural tendency to exaggerate, inflate, massage and entertain has twisted the truth into something that is nearer to fiction than fact. For historians, the best you can do is to go with what your knowledge tells you is right, and to trust testimony made nearer the event than, say, at a speech made at a golf club last week. Anyway, for me, chasing the unobtainable -- that is, the truth -- is part of the fun of writing history.

Because the truth is a flakey place indeed, I'm somewhat sympathetic to the plight in which Johann Hari of the Independent now finds himself. Journalists face the same problem of representing the truth as historians, but they have to deal with it on a much tighter timescale. And, unlike historians (ahem), journalists are under a lot of pressure to deliver something punchy and immediately appealing. In other words, the temptation to sex up the dossier is huge.

I remember once writing a piece for the Times on the archaeological work going on at London Bridge during the building of the new Tube station. My features editor asked whether we could say that the archaeologists had discovered a Roman brothel. I said it was possible, as there were often brothels at the entrances to cities, but there was no proof. He told me to put that in, and -- you've guessed it -- he cut out my disclaimer, and the piece appeared the next morning claiming that the Museum of London had found a Roman brothel. Cue angry letter, which I left him to deal with.

But former colleagues and I did worse, far worse. One was sent to Heathrow Airport to interview women in WH Smith about their holiday reading. Unsurprisingly, he couldn't be bothered to go, and he went back home and wrote the piece from there. I recall chucking in the odd line to this great work of fiction. I was particularly proud of my "totally made up woman in her late 30s", the ambiguity of which sailed very close to the wind. In the mid 1990s, I once covered a Rolling Stones comeback concert in Sheffield for the news pages in which I was supposed to interview members of the audience, but I was too gauche for some reason, and just made up the quotes, because -- and this is perhaps salient -- I thought my quotes would better tell the story than the people I was supposed to be talking to.

Because of my guilty hack past, I initially found it hard to throw stones at Hari's misleading insertion of interviewees' previously spoken or written words into an interview. His justification seems almost plausible:

So occasionally, at the point in the interview where the subject has expressed an idea, I've quoted the idea as they expressed it in writing, rather than how they expressed it in speech. It's a way of making sure the reader understands the point that (say) Gideon Levy wants to make as clearly as possible, while retaining the directness of the interview. Since my interviews are intellectual portraits that I hope explain how a person thinks, it seemed the most thorough way of doing it.

I think Hari is mistaken to claim his interviews are "intellectual portraits", because that gives him an artistic licence to write up an interview in the same way as Lucien Freud might paint the Queen. A newspaper interview should be a fairly straightforward and truthful account of an encounter -- it's not a profile, and if it is, it should be billed as such. And if Hari wants to include his subject's words from other sources, then it's very easy to stitch them in without losing any immediacy.

I was wrong to make up my quotes all those years ago, and Hari is wrong to make up his quotes today. The problem is, Hari is playing a bigger game than I was when a junior writer on the Times many years ago -- he is very high profile and he has even won prizes. He shouldn't play fast and loose with quotes, and neither, if an unpublished letter from Rowan Wilson to the Independent is correct (I'll leave you to Google that one), should he make things up. That letter is particularly damning.

We are all guilty of using licence, but to rely on it to the extent that Hari has done is to cross over into the world of invention. We have to draw these lines somewhere, and Hari must surely know, in his heart, that he has stepped over where most of us "content providers" mark that boundary. He should apologise to his readers.

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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?