Obama, Bush, Frodo, Jon Stewart and me

Others now realise how Barack has let us down -- especially on freedom and security.

Sorry to harp on about this, but regular visitors to the blog will know that I took a lot of heat for writing a long piece in the New Statesman, back in October 2009, in which I argued that Barack Obama, across an array of issues, but in particular on national security and civil liberties, seemed "to have stepped into the shoes of his disgraced predecessor". On the cover, we had a picture of Obama morphing into Bush, under the headline "Barack W Bush".

It was provocative, contrary and, of course, unfashionable. It upset lots of people on the liberal left and, I believe, we even had one or two people cancel their NS subscriptions "in protest". Obama, it seemed, was untouchable.

Not that long ago, two prominent left-liberal bloggers here in the UK buttonholed me at a conference to complain about my Obama/Bush piece and claim I was ploughing a lone (and unpopular) furrow. That seems to have changed. In the intervening months, many more people on the left and centre left, liberals and social democrats, Yanks and non-Yanks, seem to have noticed what I noticed, and wrote about, nine months ago.

Here's Michael Hirsch in Newsweek in May:

Obama's national security strategy: not so different from Bush's

Here's Max Fisher in the Atlantic Monthly in April:

On national security, is Obama just like Bush?

Here's Peter Feaver, writing on the Foreign Policy website in May:

Obama's national security strategy: real change or just "Bush Lite"?

Here's Josh Rogin, also writing on the Foreign Policy website in May:

Obama's new national security strategy: Bush 2.0?

Here's the former Bush speechwriter David Frum in April:

Continuity you can believe in

Here's Eli Lake, writing in Reason in April:

The 9/14 presidency: Barack Obama is operating with the war powers granted George W Bush three days after the 9/11 attacks.

But forget all these wonks, pundits and commentators. Perhaps the most devastating comparison between Obama and Bush, and the failure of the former to reverse the illiberal, authoritarian and unconstutional policies of the latter as he'd promised he would, came from the peerless Jon Stewart on The Daily Show this week.

The video seems to be unavailable, so I have reproduced the full (and funny) details via the Raw Story website below:

Stewart took a step back from the current BP oil spill catastrophe to look at the bigger picture of Obama's presidency. "The Gulf crisis was an unforeseen catastrophe. Barack Obama's real mission when running for president was to restore some of America's moral high standing that we had lost in the turmoil of the war on terror," said Stewart.

Obama made the case for himself while running for president in November of 2007. "Guantanamo, that's easy. Close down Guantanamo. Restore habeas corpus. Say no to renditions. Say no to wireless wiretaps," said Obama. "Part of my job as the next president is to break the fever of fear that has been exploited by [the Bush] administration."

"Obama's rein would bring back the rule of law. If the Supreme court said even terrorists at Guantanamo Bay deserved their day in court through the writ of habeas corpus, as they did in the Hamdan case, Barack Obama would honor that, not try to pull the old Bush flim-flammery," announced Stewart.

But as president, Obama did appear to find a way around habeas corpus by maintaining the Bush practice of keeping detainees at Bagram Air Force Base in Afghanistan.

The Obama administration pushed for and won the right to deny those Bagram prisoners a right to a hearing, McClatchy reported.

"Today President Obama won a victory to keep those detainees locked up indefinitely without getting even one chance to prove their innocence in court," the Nation's Chris Hayes announced in May.

Stewart seemed willing to let the president off if that was the only violation. "That's only habeas corpus. That's the only thing that was thrown out there, one small tiny fundamental tenet of law," said Stewart. "He also said he was going to end rendition."

"We also learned that the Obama administration will continue the Bush policy of extraordinary rendition, the practice of sending terror suspects to prisons in third-party countries for interrogation," MSNBC's Alison Stewart reported last August.

Stewart then played clips of then-candidate Obama calling for the "highest standards of civil liberties and human rights".

"No more ignoring the law when it is inconvenient. That is not who we are. We're going to again set an example for the world that the law is not subject to the whims of stubborn rulers and that justice is not arbitrary," Obama said in August of 2007.

Stewart appeared perplexed. "Your campaign was premised on reining in presidential power. What happened?" he wondered.

"Oh, I see," said Stewart. Apparently things had changed when Obama took the oath of office.

"And now you have your own secret military programmes that go beyond even what Bush was doing," Stewart noted.

The president has gone so far to authorise the killing of Anwar al-Awlaki, a Muslim cleric and American citizen, without trial.

"Wow. He's a bad guy, runs an al-Qaeda website from Yemen but you complained when Bush wanted to read Americans' emails without a warrant," said Stewart.

"Wait a second, all that power you didn't like when someone else had it. You decided to keep it. Oh my God, you are Frodo," exclaimed Stewart.

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.

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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?