Labour's framing failures: Mehdi Hasan on the benefits cap

Episode 124

In this week's New Statesman, I have a piece on how Labour is now fixated on a political and economic agenda set by the Tories, who are much more adept at controlling the narrative and "framing" issues. I refer to the work of US cognitive linguist and progressive thinker George Lakoff who argues that attacking your opponents' frame ends up reinforcing their message. Lakoff outlines "a basic principle . . . when you are arguing against the other side: do not use their language. Their language picks out a frame - and it won't be the frame you want." For Lakoff, progressives rely far too much on just dry facts and figures, on Enlightenment reason; conservatives, meanwhile, focus on morals and values. Guess which side tends to succeed in getting its message, its frame, across to voters?

I couldn't help but think of Lakoff and the debate over framing this morning as I listened to Stephen Timms, the shadow employment minister, and one of the nicest and brightest politicians in the party, discuss the coalition's benefit cap on the Today programme, ahead of the debate in the Lords this afternoon.

It was, in my view, a car-crash of an interview and a perfect reminder of why Labour frontbenchers need to understand the importance of framing and get themselves copies of Lakoff's Don't Think of an Elephant!

The interview began with Evan Davis asking Timms:

What is your policy on the [benefit] cap?

To which the shadow minister replied:

We support the idea of a benefit cap but we are worried that the government wants to introduce it in a very damaging way that is likely to end up costing more than it saves.

In his very first answer, Timms unilaterally disarmed - Labour accepts the "idea" of the cap and quibbles only with the implementation and cost of it. Is this approach going to cut through to voters? Or is it going to confuse the Labour message and reinforce the Tory frame on benefits (out of control budget, feckless claimants, undeserving poor, etc, etc)? I think we know the answer.

Timms then outlined the details of Labour's specific amendment to the bill and pointed out how the opposition objected to the way in which the cap, in some cases, "would make a family homeless" and force them "to be rehoused by their local authority" - at a greater cost.

Next, devil's advocate Davis put forward Iain Duncan Smith's argument and took a pot shot at the Labour position in the process:

The guys is trying to save lots of money on welfare....he meets opposition at every count. he hears people who say they support werlfare form but oppose everything he suggests. I wonder if that's not what you're doing hear, because you say 'We support the idea of a cap but we don't want the cap to be nearly as high as the government are proposing', in effect.

Timms's response began:

We've tabled a specific amendment...

Yawn. A few moments later, the shadow employment minister volunteered the following, astonishing statement:

The government has suggested...there is going to be lots of transitional help. I don't know what that's going to be. We haven't heard any details of that. Maybe the House of Lords will be told what that amount to. That presumably will be costly. We're saying change the bill...

Hold on, did I just hear a Labour spokesman voluntarily, of his own accord, without prompting from the interviewer, remind the audience of a Tory talking-point ("there is going to be lots of transitional help")? Really? Timms might say he was trying to rebut the point (again, incidentally, on practical (i.e. cost) grounds, rather than on moral grounds) and so it's worth remembering Lakoff's dictum: attacking your opponents' frame - be it on benefit caps or deficit reduction - ends up reinforcing their message.

Timms then got caught up in knots trying to answer Davis's question on whether Labour would support an amendment to exclude child benefit from the cap, prompting the genial Today programme presenter to note, with only the faintest hint of sarcasm:

You're not really able to say anything...

He then added:

It would obviously help if you had a policy. We'd know what was going to happen.

Ouch.

So what could Timms have done instead? Well, for a start, he could have said:

Isn't it wrong that this coalition government spends so much time trying to take money from the poorest, most vulnerable members of society while refusing to tax bankers' bonuses?

He could have said:

Evan, let me ask you this: could you or any of the other Today programme presenters live on 62p a day? That's what the coalition government want hard-working, low-income families to try and do with this arbitrary cap. Is that right? Is that fair?

He could have said:

I happen to agree with the former Lib Dem leader Paddy Ashdown who says he won't vote for this bill because it'll increase child poverty. If even Paddy Ashdown gets it, why won't Nick Clegg and Vince Cable?

He could have said:

Shouldn't the Work and Pensions Secretary be focusing his energy and attention on creating jobs for the record 2.7 million people who are out of work right now, rather than trying to take money away from some of the poorest, most vulnerable families in this country? The best way to get the benefits bill down is to get people back to work - which this coalition government doesn't seem to be able to do, with 1,300 people a day being thrown onto the dole.

In fact, I happen to think it is both bizarre and unforgivable for a shadow employment (!) minister to appear on the radio and not then mention the word "unemployment" at all, or take the opportunity to attack the coalition's shocking failure to create jobs. "Jobs, jobs, jobs" should be the Labour Party mantra.

I should add, however, that it might be a bit unfair to pick on Timms like this; other shadow cabinet ministers make similar, if not worse, mistakes when it comes to opposing Tory (and Lib Dem) policies. Labour's frontbench is constantly on the defensive, unable to acknowledge or understand the importance of picking their own frames and making their own arguments. As I point out in my piece in the magazine:

There is a theme here - the Tories set the agenda, Labour operates within it.

Until this changes, I think it'll be pretty difficult for Labour to win a majority at the next general election.

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?