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Laurie Penny: Why won’t we grow up and start planning for the future?

Britain's Summer of Angst.

Ahead of his first visit to the White House as Prime Minister this week, David Cameron published a remarkable op-ed in the Wall Street Journal, in which he lays out his vision for Britain’s future role on the global stage. The piece is a feat of political positioning, and Cameron’s realism about Britain’s status as "junior partner" in the "special relationship" is to be commended. The only jarring note is our glorious leader’s desperate claim that Britain is “a strong, self-confident country, clear in our views and values”.

This is a painful untruth. Loath as we may be to admit it, this country is embroiled in a torturous crisis of identity and purpose, unsure of our collective views, unconvinced of our national values, our confidence profoundly and, some might argue, justly shaken. We are undergoing a systemic and traumatic change in the political settlement that has defined the past two decades of our national self-image, and as our new overlords attempt to relaunch civil society with platitudes about community spirit and £60m pilfered from disused bank accounts to fund a few museum volunteers in Liverpool, even the conservative right can't offer a stable, positive vision for Britain’s future.

Our culpability in the Deepwater oil disaster, our role in the financial crash of 2008, even our miserable performance at the World Cup, have disturbed the popular impression of Britain as a country that “punches above its weight”. If 2009 was the "summer of rage", then 2010 is surely the summer of angst. After the rash of "Will you be supporting England?" articles during a certain international kickball competition, England’s dismal result – being knocked out before the quarter-finals by Germany, of all humiliations – was an own goal for the weary mythology of "two world wars and one World Cup".

Even the liberal press is shuffling with embarrassment about having attached any importance to the games, and it would be crass of those of us who always thought of the World Cup as a silly willy-waving competition to feel in any way vindicated. Britain’s self-esteem is at a chronically low ebb, and this matters for the left as well as the right: extreme nationalist organisations are on the rise, the future looks grim and uncertain, and the bloodier, uglier parts of the past, as evidenced by the Tories’ stated desire to "tell a big story" about the glory days of empire, keep getting brighter and brighter.

Readers of this blog have accused me variously of hating or misunderstanding my country and all the things that make us great. I find this rather harsh. In fact, I think I’m in a unique position to empathise with the current crisis in Britishness, as being a person from the UK in 2010 is not dissimilar to the rather embarrassing emotional trajectory of being a sensitive young person in one's early twenties.

You’re broke, and making bad choices about your money; you’re unsure who your friends are and worried about a future whose outer edges you can barely imagine; you spend your time guiltily re-examining all those horrendous things you did when the world was younger and meaner, but the navel-gazing is interrupted by bursts of shocking arrogance and gleeful, dirty pride. You had such plans and ambitions, and now the world seems to be moving on without you, leaving you behind; you long most of all for a sense of narrative coherence, for a certain story to tell about who you are and where you’re going.

It is right for the left to worry about Britain’s self-conception, because it affects every aspect of our policy, from the ongoing wars in Iraq and Afghanistan and dark hints by Cameron about working with America “for an Iran without the bomb”, to the costly renewal of Trident, and the coalition’s indulgence of the City of London at the expense of the people of Britain.

Paul Gilroy, the historian and author of After Empire, eloquently observes that Britain’s unwillingness to grieve and move on from our former global superpower status is stifling our growth and development as a nation.

“The vanished empire is essentially unmourned,” he writes. “The meaning of its loss remains pending. The chronic, nagging pain of its absence feeds a melancholic attachment.” This despondency fuels a persistent fatalism in our national outlook, a complaisance, even on the left, with cannibalistic neoliberal policymaking, a meek acceptance that the present is unfair and the future will be worse.

This is a ridiculous way for anyone to behave, much less a nation with 2,000 years of illustrious and inglorious history. Britain is not behaving like a "strong, self-confident country". It is behaving like a country in the middle of a violent and bewildering identity crisis, a country that has deceived its citizens time and time and again in order to prop up its sense of self-importance, a country whose insecurities are doing untold damage to ordinary people in the UK and across the world. It is behaving, in short, like a country that needs to get its act together and grow the hell up.

What characterises a quarter-life or mid-life crisis, as well as mortgaging one’s long-term solvency to pay for expensive bits of bling such as sports cars, international wars and nuclear missile delivery systems, is a sense of lost time: a sense that, whatever happens, the years to come cannot possibly be as eventful, as exciting or as prosperous as the years that have gone by.

This, of course, is nonsense. Britain is a country with a future as well as a past. We may feel ancient and irrelevant, but Britain is a young country, and this is a young planet. We will never again be a superpower, but we have much to contribute to the future of global society, a future which, however stridently world leaders, business owners and neoliberal apologists choose to ignore the fact, will indubitably continue beyond the year 2030.

It is with deep love for my country that I dearly wish the British would grow up, get over ourselves and start planning for that future.

Laurie Penny is a contributing editor to the New Statesman. She is the author of five books, most recently Unspeakable Things.

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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?