How Miliband can address his image problem

The Labour leader must show, not just tell, people who he is.

Last year, as it became clear that Mitt Romney would be their opponent, the Obama campaign had a choice in how to attack him: as a flip-flopper who kept changing positions or as a protector of the 1%, too rich to understand the plight of ordinary Americans. They settled on the latter strategy for two good reasons. First, it fired up their own base who were supportive of the call by Occupy Wall Street. Second, it would neutralise Romney’s main charge that Obama was not competent enough on the economy, by convincing them that Romney would not act in their interests anyway. While Obama has managed to execute his strategy perfectly, Romney has continually stumbled.

Political framing matters immensely. People don’t study every policy: they develop a gut feeling for politicians and parties and then interpret events and news through that gut feeling. This applies to Britain as much as the United States.

It is exactly two years since Ed Miliband was elected leader of the Labour Party. He has managed to unite different factions of the party, offer a new direction that breaks significantly with New Labour, admitted to mistakes of the past (Iraq, 42-day detention, ID cards, lax financial regulation) and established a double-digit lead over the Tories. This is no mean feat for a party that in 2010 suffered its second worst-defeat since 1918 and oversaw the biggest financial crash in 80 years.

But Miliband has been less willing to consider a key hurdle for re-election: how people perceive him. I call this Labour’s Wonk Problem: Miliband and many of his closest advisers prefer to focus on policy and speeches, instead of being mindful about image as Tony Blair was. Several polls last week underscored the fact that this has become a problem. In the Times and the Evening Standard, surveys of public opinion found that Miliband trailed Cameron on several key personal characteristics. When Miliband was elected Labour leader, the Conservatives immediately set out to frame him as "Red Ed". After that didn’t work they decided to switch to Odd Ed, and then back again when unsure. Neither label has quite worked: voters consider the Labour leader to be no more left-wing than Cameron is right-wing.

It isn’t that Miliband is shy or awkward in person – even hardened critics such as Charles Moore admit he is much more affable than his TV persona suggests. The problem is that Miliband himself hasn’t done anything to craft his image beyond a few family-oriented interviews. David Cameron has successfuly managed  to project himself as a tough leader; voters might not like him but enough of them think he is willing to take unpopular decisions to sort out the economy. His Achilles Heel is that while the economy is flat that image will keep crumbling.

But Miliband cannot wait for Cameron’s facade to crumble - he has to tell voters more about himself. He has to actively frame himself. This isn’t a lost cause: the election is still two-and-a-half years away, with the televised debates representing a key opportunity to prove himself in front of the public. His ratings have improved significantly in the last few months as he has taken a strong lead on banking and media reform. But these were about policies and issues, not characteristics.

The image Miliband needs to avoid goes like this: "He is a nice guy, has my interests at heart and means well. But we are in deep trouble and we need a guy willing to take tough decisions to sort out the economy." The one he needs to project goes like this: "Yes, I’m a bit of a geek and a bit bookish. I sometimes speak like a guy who has worked in Westminster all his life. But I’m intelligent, genuine and bold. I care less about PR stunts and more about policy detail. I know my shit. But I know what needs to be done to get this country out of its mess and will take the bold decisions to do so. My opponent only has the interest of the super-rich in mind."

The charge against Cameron should be broadly the same as the one Obama is making against Romney: my opponent may act tough, but he does not have your interests at heart. Miliband also needs to open up more. His Twitter account is a good example of where he could show more personality, but he has been hemmed into taking a highly cautious "here-is-my-latest-statement" approach by his team.

Two years after being elected, it is time Miliband started letting voters know what kind of a person he is. For this, he needs more interventions and fewer policy reviews. He scored a direct hit during the 50p tax cut and that damaged the Conservatives deeply. He needs to create similar traps and take bolder steps to do so. He has to show he has the courage to take on the establishment beyond making a speech just saying that.

Miliband is heading into his third Labour conference as leader in the strongest position he has been in. His biggest job now is to challenge himself to be bolder.

Miliband needs to be "mindful about image as Tony Blair was". Photograph: Getty Images.

Sunny Hundal is editor of Liberal Conspiracy.

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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?