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Laurie Penny is occupying Wall Street

A dispatch from the New York frontline.

The big bronze bull is surrounded by metal fences and strategically placed members of NYPD's finest. The famous statue, the symbol of aggressive market optimism, is normally open for tourists to grope and fondle, but today, in part because of the "Occupy Wall Street" protest, it has been penned. Today, the Wall Street Bull looks amusingly like a panicked animal in a cage.

It might have been spooked by the couple of thousand activists, hippies, union members, laid-off workers and schoolkids camped out around the corner in Liberty Plaza. When I arrive at Occupy Wall Street, they've already been there for a fortnight, and have turned the square, which is normally scattered with City workers snatching lunch and chattering on their smartphones, into a little peace village, complete with a well-stocked library, free kitchen, professional childcare centre, sleeping areas, meeting spaces, and crowds of young people dancing and playing music.

The protest, which began on 17 September after a call-out by activist magazine Adbusters and the hacker collective Anonymous, has swelled from its original few hundred members after a weekend of police crackdowns. Images of New York police pepper-spraying young women in the face and arresting peaceful protesters spread around the world, which has been shocked not so much by the response of the police in a city where the term 'police brutality' was coined, but by the fact that here, in America, at the symbolic heart of global capitalism, ordinary people have turned off their televisions and come out to shout in the streets. "I never thought I'd live to see this in New York City," says my friend, a native New Yorker, as we watch a drum circle forming underneath the looming skyscrapers of Manhattan's financial district, speckled with rain.

Right now, as I write from the occupied Plaza, a mass arrest is taking place on Brooklyn Bridge, where 2,500 activists have marched to express their distaste for corporate greed. 'Banks got bailed out - we got sold out!' chanted the marchers, hesitantly at first, and then more confidently, keeping to the sidewalks, before they were led onto the car portion of the bridge by police - who promptly sealed the exits and began to arrest everybody.

The entrance to the Bridge is now completely sealed by a quadruple line of cops, as reports come in that a journalist from the New York Times has been arrested. Marchers on the other side yell angrily at the police to let their friends go. "Come join us!" they shout. "You are the ninety-nine percent!"

They mean that the police, like the protesters, are part of the "99 per cent' of the population whose livelihoods are threatened by the financial crisis, as opposed to the 1% of wealthy Americans still raking in profit. "We are the 99 percent," says the group on its Tumblr site. "We are getting kicked out of our homes. We are forced to choose between groceries and rent. We are denied quality medical care. We are suffering from environmental pollution. We are working long hours for little pay and no rights, if we are working at all. We are getting nothing while the other 1 percent is getting everything. We are the 99 percent." It's a very polite way of saying 'class war.'

The '99 percent' statistic has become emblematic of the American wing of what is phrasing itself as a global protest movement, taking its inspiration from square occupations in Egypt, Greece, Spain and Great Britain. Another statistic you can see daubed on placards around the Plaza is that the wealthiest 400 Americans have more combined wealth than the poorest 150 million. Later in the day, the United Steelworkers union becomes the latest in a growing list of labour organisations and non-profit groups to throw its support behind Occupy Wall Street, ahead of a united march next Wednesday.

Economic inequality is a consistent undertone, but at times this occupation has the feel of a music festival; drifting through the square are young people who seem to have walked out of a wormhole from Woodstock, including a boy with dreads and tiedye scarves sitting on a skateboard next to a sign asking for 'donations for adopting puppies.'

I ask him what the puppies are for. 'Emotional support,' he tells me. Elsewhere, a young woman with long hair is handing out posies. "You're very beautiful," she says, smiling, "have a bottle of flowers." All of these people appear to be disturbingly sober: nobody wants to give the NYPD an excuse to crack down.

Not that they need an excuse. There can be no swifter political lesson than the first blast of pepper spray to the face received by a middle-class protester, and right now a lot of American activists are learning fast. "No Bulls, No Bears, just Pigs," reads one sign. As the light fades and the rain starts to come down hard, hundreds of protesters, reporters and members of the press are still trapped on the bridge. In the pouring drizzle, they strap their backpacks onto their fronts so the police can't take them, according to Kristen Gwynne, a New York writer. Gwynne tells Alternet that protesters are singing to keep morale up: 'this little light of mine.' Hundreds more are cuffed and on vans headed to jail. "I had a feeling as soon as we walked onto the bridge that this wasn't going to end well," says Michael, a member of the march. "The police allowed people to go on the car ramp on the bridge, and when they realised what was happening, people started jumping onto the pedestrian side, but then it was too late." Young teenagers are among the arrestees, in scenes extremely reminiscent of the Westminster Bridge kettle in London in December 2010. "You can't arrest an idea!" the protesters yell.

But what is the idea? The most consistent criticism laid against the occupiers is their lack of a central organising system or core message. Who are these people, and what do they want? The fact that the mainstream media is even asking this question can be considered a victory for the Occupy Wall Street.

Part of the point of this occupation, like the occupations in Greece, Spain and London, has been to create a different kind of political space, a temporary reality outside the lassitudes of mainstream politics where human beings are equal and respected. People have come from all over the country and all over the world to be here, and not all of them, contrary to most of the reports, are white and college-educated. I meet black high-schoolers from Brooklyn, young men from California, young women from St Louis, Maine and Wisconsin, older laid-off workers from Texas and Virginia, and activists from Spain who have come to see if America can really host the kind of revolutionary space that has been opening up across Europe and the Middle East. It seems that, in its own way, it can: copycat protests are opening up across the country, from Chicago to Denver to Los Angeles and Boston.

As night falls in New York, in a bright, busy space under some colourful tarpaulins, the media team is working flat out to deal with international press enquiries, as reports come in that 700 protesters have been arrested by the New York Police Department (NYPD). There is a tense, frenzied atmosphere, with laptops flung down in between knots of cables as volunteers scarf down donated pizza and field information coming in over the wires. Outside the media tent, thousands of people are taking part in a mass meeting, huddled inside plastic ponchos and under umbrellas. NYPD have forbidden amplification, so anything said at the front is immediately chanted back by three hundred voices so that the rest can hear, giving the meeting the call-and-response a feel of a sermon. Every evening, these large General Assemblies gather to debate the demands and direction of the group, and a loose statement is eventually agreed by consensus and published in the group's newspaper, the "Occupied Wall Street Journal."

So far, it's pick-your-own cause, with grievances ranging from bank bail-outs to animal testing, and yet what most of the mainstream media seems to have missed is the fact that the occupation itself is its own demand. It's a symbolic and practical reappropriation of space at the heart of the world's most financially powerful square mile, an alternative community opening up like a magic window on a fairer future.

Activists wandering back from the bridge are greeted by strangers with open arms, as members of the 'comfort' team dash around taking care of everyone. There is free coffee, free food, a young lady with a lip-ring offering free hugs, and painted signs saying "Freedom". Nobody expected the occupation at Liberty Plaza to last this long or to become this important, but the mass arrests today have ignited public anger and drawn the attention of the press across the world. Whatever happens next, Occupy Wall Street is sending a message to the American people: the 99 percent are still here, in the shadow of the glittering palaces of global finance, and they are beginning to dream dangerously, and they will not go away quietly.

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?