Will the Olympics change our politics for good?

Voters should not be underestimated.

We British can give ourselves a rather tough self-assessment. For instance, only one in four of us (24 per cent) think Britain is a good place to invest and just 13 per cent of Brits think we have a strong economy. Among global consumers looking at Britain from a distance, the figure rises to 42 per cent for investment in the UK and 48 per cent thinking we have a strong economy. Indeed, across a whole range of topics we find people around the world seeing Britain in a pretty positive light, compared to how we British see ourselves.

Of course, that pessimism is not that surprising, especially given the economic situation.  According to the Ipsos MORI Issues index, the economy and unemployment are constant anxieties for many people – the economy has been top of the country’s agenda every single month since September 2008 - and increasing numbers are worried that government and public services will not be able to do enough to help people in the years ahead.

This year, however, Britons have been looking to the Olympics for a feel-good effect to brighten up the national outlook. Just before the Games, seven in ten said they thought the Olympics would help to improve the mood of the British public, while politicians such as Mayor of London, Boris Johnson, speculated about a possible boost to the UK economy thanks to the Games.

This brief pause between the Olympic and Paralympic Games provides a good moment to see if a feel-good effect has really materialised.

Our recent post-Olympics poll shows that in the light of the Olympics success British people do say they are now more positive about a whole range of organisations and people involved in public life. Four in five (81 per cent) said the London Games had a positive effect on their opinion of the BBC, seven in ten (70 per cent) of the Royal Family and around three-quarters (74 per cent) said it had improved their opinion of Londoners.

Even Londoners themselves say the Olympics has left them upbeat, with 83 per cent saying the Games has improved their view of their fellow citizens of the capital. Londoners are also most likely to say it has given them a positive view of their public transport system with 65 per cent saying they have become more favourable towards it.

Has this feel-good factor also reached perceptions of the Westminster village? On the face of it, yes. Benefiting particularly from the halo effect is Boris Johnson, with 61 per cent saying it has improved their view of him (even higher among Conservative voters).  Nevertheless, he is not the only one; the overnment and the three main party leaders have all seen their approval ratings go up over the last month, according the latest Ipsos MORI Political Monitor. Satisfaction with David Cameron is up six points, Ed Miliband up eight points, and Nick Clegg up five points.

But the question is, is this a real change in the political landscape? Approval ratings for all the party leaders are up, but it does not seem to have had a great impact on voting intentions.  Labour retains a clear lead over the Conservatives, despite their share dropping two points on last month to 42 per cent. A third (32 per cent) say they would vote for the Conservative Party and 11 per cent for the Liberal Democrats, both just one point different from July.

The public also remain as sceptical as ever about politicians and their motives, and there is much change in public perceptions of the coalition. Two in five (42 per cent) say the coalition is providing stable government (compared to 39 per cent in July), just over a quarter (27 per cent) say it is working as a united team (no change compared to the 26 per cent in July) and just over half (54 per cent) say it is unlikely to last until 2015 (compared to 52 per cent in July). To top it off, we also find this month that a clear majority of voters think that all three main political parties put the interest of their party before the national interest.

It is also worth questioning the extent to which national occasions such as the Olympics really do have an impact on people’s perceptions of politics – perhaps because their very nature as unifying events, above the usual cut and thrust of daily politics, means that people do not see them as so relevant to their judgement of the different parties.

The Diamond Jubilee this year is a very recent example, which despite leading to very high satisfaction ratings with the Royal Family seemed to have no significant impact on voting intentions.  Looking back to the Royal Wedding in April last, there was no positive effect for the government immediately afterwards (nor was there from the wedding of Charles and Diana in July 1981 in our polls from back then). Satisfaction with the leaders actually fell slightly, with the exception of Mr Cameron’s rating which remained the same from April to May. 

Even the Golden Jubilee celebrations of June 2002 seem to have had no obvious impact on voting intention, with Labour holding a consistently strong lead over the Conservatives during that period. There was a seven-point rise in satisfaction with the way Tony Blair was doing his job but that was relatively short-lived dropping off in the month afterwards.

When England won the rugby world cup in November 2003, there was a four-point rise for the sitting Labour government in December to 40 per cent but certainly no lasting effect as it was straight back down in January. There was hardly any change in satisfaction ratings for the then leaders either. And England’s procession to the semi-finals in 1996 – for better or worse – didn’t seriously impact Labour’s stranglehold in the polls. 

And, of course, perhaps that is just as it should be. The public should not be under-estimated; they know what is important to them when making their judgements about politicians, and it is those factors that the parties will need to return to when normal political life resumes.

Gideon Skinner is head of political research at Ipsos MORI

Vice-President of Brazil Michel Temer, Pele, David Cameron and Mo Farah at No 10 Downing Street. Photograph: Getty Images

Gideon Skinner is Head of Political Research at IpsosMori. He tweets as @GideonSkinner.

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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?