The TUC rally, hummus and me

Those of us who were proudly and peacefully protesting in Hyde Park resent being associated with the

I don't like hummus. In fact, I despise hummus. I prefer going straight for the main "dead animal" course in my local Lebanese -- a shawarma, perhaps, or even a lamb chop. But hummus? Never.

So the claim that those of us who preferred to go on the TUC march -- rather than vandalise a state-owned bank or throw paint at the police -- were just "munching houmous in Hyde Park and listening to some speeches" would have offended me if it wasn't so silly.

But my fellow NS blogger Laurie Penny is allowed to be silly if she wants to. If she wants to hang from a set of traffic lights in Oxford Circus, then that's her prerogative. She's entitled to her views -- and her "riot boots".

But I'm entitled to my views -- and I'm annoyed with the violent "protesters" (thugs?) who tried to wreck an important and historic march by rewarding right-wing, pro-cuts media outlets with the negative headlines and imagery that they had so craved. Then again, what else does one expect from a bunch of outraged kids who prefer to gesticulate for the sake of the Murdoch-owned television cameras? For whom "solidarity" is merely a word to daub on the side of Topshop, rather than a lived act of joining fellow citizens on a mass scale? In my view, solidarity isn't about smashing windows in a co-ordinated manner. (Oh, and I refuse to refer to those louts as "anarchists" until I see any evidence that the disgruntled youth I saw kindling that pointless bonfire in the middle of Oxford Street has read even a page of Kropotkin.)

Here's my rather simple and old-fashioned view: the trade union movement persuaded 500,000 people to turn out on Saturday to protest against the coalition's spending cuts and "march for the alternative" -- the Robin Hood Tax, green investment in education and jobs, reform of the banks and tax justice. Five hundred thousand people. That's half a million people for those of you who can't count.

There were dozens of speakers at the Hyde Park rally -- from the leader of the opposition to elected general secretaries of Britain's biggest and smallest unions; from the National Pensioners Convention to Operation Black Vote; from poets to freeminers. There was a call-centre worker who'd walked all the way from Cardiff to make his voice heard. And, no, I didn't spot a pot of hummus in his hand.

So why was there a need for an "alternative" protest, away from the main march in London and the rally in Hyde Park? Why did UK Uncut -- a group, incidentally, whose aims, principles and even tactics I have wholeheartedly supported since its creation last year -- decide to stage a sit-in at a posh shop no one's ever heard of on Saturday afternoon? Don't get me wrong: UK Uncut had nothing to do with the violence at the weekend and have since been wrongly maligned by much of the mainstream media, but why consciously opt out of a march involving -- one more time -- 500,000 of your fellow citizens? Couldn't the well-heeled shoppers in Piccadilly have been rudely interrupted on Sunday instead? Or Friday? Or Monday? Any day other than the day of the TUC march? This scene from the Life of Brian comes to mind . . .

It's a point that Anthony Painter makes this morning over at LabourList. Like me, he objects to Laurie's blog post on the NS site and I can't help but agree with much of what he writes. Having said that, I was amused to see Anthony, an intelligent and informed blogger, whose posts I often enjoy and admire, making an idiotic demand via Twitter for an "apology" from the New Statesman. Referring to Laurie's post, he says: "A hasty apology and retraction of that part of the piece would be welcome."

First, isn't it odd that centre-left bloggers should be demanding such brazen censorship from a centre-left magazine? We're a broad church here at the NS; plural and proud of it. Second, I'm astonished that a clever, web-savvy guy can't seem to distinguish between the New Statesman -- the award-winning current-affairs magazine, founded in 1913, employing dozens of writers -- and a single blogger on the New Statesman website. Third, I think it is remiss of Anthony to write a blog post in which he takes a potshot at the New Statesman on the subject of the march/rally without acknowledging that the senior politics editor of the magazine compered the final section of Saturday's TUC rally (the video, if you want proof, is below). In return, I could now demand an "apology" from LabourList. But I won't waste time.

Instead, I'll carry on marching and rallying with the mainstream. Some of us actually want to try to change things.

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?