Alan Johnson isn’t going to be the next Labour leader

The reports and rumours swirling around the Westminster village are ridiculous.

Left Foot Forward's Will Straw had a very interesting piece on the Guardian's Comment Is Free site a couple of weeks of ago:

The hysteria about Ed Miliband's leadership has revealed a truth about modern politics. Unless a leader is riding 20 points high in the polls, speculation will mount about their fitness for the job. The attention deficit disorder of the media and political class has delivered ten party leaders (including caretakers) in the last five years.

That, my friends, is a startling stat (the full list: Michael Howard, David Cameron, Charles Kennedy, Menzies Campbell, Vince Cable, Nick Clegg, Tony Blair, Gordon Brown, Harriet Harman, Ed Miliband). He went on:

Never mind that Miliband is only eight weeks into the job. Never mind that the timing of his paternity leave came during an unfortunately busy period. Never mind that Labour is robustly above 40 per cent in the polls with a lead as wide as 5 points recorded in one. And never mind that Miliband's net approval rating at +9 is ahead of where David Cameron was at this stage in his leadership.

Yep, "never mind" indeed. The navel-gazers in the PLP and the hysteria-mongers in the lobby would rather obsess over and gossip about the supposed "fallout" for Miliband's leadership from a single Today programme interview and a lacklustre performance at last week's Prime Minister's Questions.

Meanwhile, Miliband's shadow chancellor, the plain-speaking ex-postie Alan Johnson, continues his one-man campaign to undermine the Labour leader who placed such faith and hope in him. I wrote in a recent column in the magazine:

There are divisions inside the shadow cabinet but these can be exaggerated. I'm told that the shadow chancellor, Alan Johnson, has offered "private assurances" to the Labour leader that he was not "stirring things up" with his recent comments on the 50p tax rate.

I had been willing to give Johnson the benefit of the doubt; I like him as a person and admire him as a politician, even if he and I do disagree on civil liberties, the 50p tax, tuition fees, etc. But his comments to Mary Riddell in yesterday's Telegraph had me groaning and must have had Ed M tearing his hair out:

"The fact that no one's introduced a graduate tax doesn't mean it can't be done."

But he doesn't think it possible? "Well, I don't think it could [work]. Frankly, there's a difference of view."

Here is the most senior member of the shadow cabinet pooh-poohing a signature policy advocated by the leader of the party: "I don't think it could [work]." That's just great (!)

As even the Spectator's James Forsyth pointed out:

Johnson is abusing the trust placed in him: he's a canny enough politician to know how all these interviews are going to play. Ed Miliband deserves better, much better from his shadow chancellor.

I agree. I note that Johnson says in the Telegraph interview, when asked by Mary Riddell if he has been "slapped down" by Miliband:

No. That is the mark of the man.

Perhaps Ed M needs to start doing some "slapping". If he's not worried by his shadow chancellor's rather vocal "differences of opinion" on two key policies (50p income tax and graduate tax), then he should be worried by the supposed scoop in today's Mail on Sunday:

Alan Johnson is being urged by his supporters to "ready himself" to replace Ed Miliband if the Labour leader succumbs to the growing crisis surrounding the party.

The dhadow chancellor is already being talked up as a stand-in leader – less than three months after Mr Miliband won a bitter battle with his brother David for the party crown.

So why should he be worried? Not because the story is true; it isn't. The source of the "ready himself" quote is unclear and those of us who have spoken to Johnson recognise that he has no desire to be the next leader of the Labour Party. Indeed, the former home secretary had ample opportunity to stand for leader – against both Gordon Brown and, over the summer, both Miliband brothers. He was urged to do so by Labour MPs, activists and the commentariat. But he didn't. Like Jon Cruddas, he lacks the killer instinct, the leadership ambition.

But the problem for Miliband is that such stories will become more and more frequent in the coming days and weeks, and will harden the narrative of a "split" between the Labour leader and his shadow chancellor, making Johnson appear more rebellious and divisive than – to be fair! – he actually is.

Meanwhile, I note that the Mail on Sunday's Glen Owen went wandering through the Commons tea rooms and dining rooms looking for the Blairite "usual suspects" and – surprise, surprise! – found them:

One prominent Labour backbencher bluntly described Mr Miliband as "f****** useless", while another said the parliamentary party was "completely demoralised".

He added that because Mr Miliband had won the leadership with union votes and did not have a majority of his MPs behind him, there was little appetite to rally round.

"Members of the shadow cabinet are being openly critical in the tea rooms," he said.

"Everyone thinks that Johnson would make a far better leader, but he is stopping short of saying he wants to do it."

A Labour peer was equally damning: "Ed is a student politician, and that is all he will ever be."

Yawn. There's the usual claim that Miliband does "not have a majority of his MPs behind him" and that there is therefore "little appetite to rally round", while omitting to mention the fact that: a) Mili-E won the support of 122 Labour MPs, and b) of the 140 MPs who backed his brother, a big chunk of them put Ed M down as their second preference. He is far from isolated inside the PLP. In fact, the only thing missing from this predictable Sunday-political piece is the now-regular discussion of Brother David's manoeuvring and Mili-D's much-mentioned "lunching" of national newspaper editors in recent weeks.

But, I mean, let's assume Ed M was "got rid" of by rebellious, right-wing MPs, rather than, say, run over by a bus. Would the Labour Party really turn to the other Miliband for leadership in such a scenario? How would MPs explain such a move to the electorate and the media? Wouldn't it just be weird to have David M replace Ed M in a coup, or some such divisive and traumatic event, after Ed M beat David M fair and square in the leadership election only two months ago? Isn't it time for David M, "Labour's lost leader", to accept that he, ahem, lost?

And, frankly, isn't it time for the Mili-D ally Alan Johnson to get on board the Ed Miliband Express? According to Westminster's conventional wisdom, Ed Miliband had to appointJohnson as shadow chancellor, rather than Ed Balls, despite the latter's superior qualifications and credentials, because Johnson would help Ed M unite the shadow cabinet while Balls would have undermined Miliband's leadership. That is to say Johnson would be loyal, Balls disloyal. The exact reverse, of course, has happened.

Perhaps, from now on, Johnson should keep his disagreements with his leader over policy issues to himself and focus his energies on attacking the coalition. I, for one, was deeply disappointed to see the shadow chancellor and his team refuse to comment on last week's WikiLeaks revelations about Mervyn King's outrageous intervention in the party-political debate over deficit reduction. It was left to the shadow defence secretary, Jim Murphy, and the backbencher Tristram Hunt to point out that the Bank of England governor's independence had been "called into question" and that he "needs to take great care".

Can you imagine what Ed Balls would have said? Oh well . . .

 

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?