In this week's New Statesman: Islamophobia on trial

China's rise, America's fall | Hari Kunzru dances to Kraftwerk | US Writing Special

Breivik's paranoid fantasies

As the trial of the Norwegian mass murderer Anders Breivik begins, the New Statesman reflects on the wider ideology, and hatred of multiculturalism, that informed his actions. Read the New Statesman's leader, "The most shocking thing about Breivik is how many agree with his opinions", here.

Without the declaration that Breivik is too insane to stand trial, Daniel Trilling, the author of the forthcoming Bloody Nasty People: the Rise of Britain’s Far Right, writes that we’re forced to ask where such hate doctrine in Europe and the US originates from:

To think that every cultural conservative is a secret extremist or a Breivik-style killer-in-waiting would be [a] paranoid fantasy. But the point about far-right ideology is that it is parasitical on the mainstream. 

The fascism of the 1920s and 1930s succeeded because it played on wider fears, winning the support of those who would never have thought of themselves as “extremists”. The Nazis used anti-Semitism because it already existed in German society. Their successors today use Islamophobia because it already exists in our societies. From a tiny grain of truth – the threat of Islamist terror – has been spun a whole mythology about the imminent collapse of western civilisation and, whether they realise it or not, conservative ideologues are helping spread the poison that enables the far right to grow. 

Elsewhere in the magazine, Peter Wilby considers Islamophobia’s insidious printed form, referring to “studies [that] suggest more than two-thirds of British press stories about Muslims portray them as a threat to British values.”

China's rise, America's fall

The financial crisis has seen the global economy turned on its head. In back-to-back essays this week, the New Statesman charts the economic rise of China against the US’s concurrent decline. 

In “The beginning of a new world order”, the journalist and co-founder of the think tank Demos, Martin Jacques, demonstrates how, as we emerge from the wreckage of the global recession, China - rather than America - is set to dominate through both soft and hard power.

Alongside this, Edward Luce, the author of Time to Start Thinking: America and the Spectre of Decline, reveals, from his extraordinary access to Pentagon officials, that even they admit the era of US global dominance is over.

Hari Kunzru dances to Kraftwerk

On 15 April, the novelist Hari Kunzru joined 449 neophiliacs at the Museum of Modern Art in New York for one of an eight-night retrospective performance by Kraftwerk, “generally reckoned to be the most influential pop musicians of the past 30 years”. 

Kunzru reconsiders the German electronic outfit’s “rigorous aesthetic modernism” – “They seem to celebrate post-war Europe as perhaps the ultimate “nonplace”, banal but somehow perfected, and sing out its banality as a kind of transcendent pop joy” – and describes the joy instilled in him last Sunday by these four now middle-aged men:

We are experiencing the aural equivalent of Tatlin’s Monument to the Third International, a towering symbol of the New. And we are finding the New quite funky, thank you. The auditorium is soon filled with 450 very lucky New Yorkers succumbing to the sexual discipline of the disco, bodies jerking masochistically to relentless, synthetic, industrial beats.

In the Critics

The bulk of the Critics section this week is devoted to an American writing special. Mark Greif and Heidi Julavits, editors from two of the US’s leading literary periodicals, n+1 and the Believer, examine the recent flourishing of “little magazines” across the Atlantic. “The field of US small magazines has grown in the past few years,” Greif writes – especially magazines perched at the intersection of politics and culture. “The prospects for left-wing cultural life seem more generous in 2012. Maybe that’s because the ethos that you should make art and thought, not to feel like an artist, but because you have something to say, has found an opening in history again.” Julavits is slightly more pessimistic about the prospects for long-form literary and cultural journalism: “No matter how well (or not well) something might be written, the new challenge is this: how much time a reader will read any text before his or her brain flips to another text.”

Also in this US Writing Special, Sophie Elmhirst profiles Jonathan Safran Foer; the novelist and critic Ben Marcus asks why American writers today are obsessed with apocalypse; Jonathan Derbyshire talks to Shalom Auslander about his novel Hope: A Tragedy, in which the protagonist discovers an elderly Anne Frank living in his attic in upstate New York; Olivia Laing reviews The Lifespan of a Fact by John D’Agata and Jim Fingal, a contribution to the debate raging in the US now about “how fictional non-fiction is allowed to be” and Jonathan Derbyshire revisits Michael Harrington’s book The Other America: Poverty in the United States on the 50th anniversary of its publication. 

Elsewhere in the New Statesman

All this plus Denis MacShane on the implications for the democratic left if François Hollande is victorious in the French presidential election, Nicholas Wapshott argues that it’s not yet time to write off Mitt Romney, and Mehrezia Labidi, a speaker in Tunisia’s parliament, tells Mehdi Hasan how Islam, feminism and democracy are compatible.

 

Alice Gribbin is a Teaching-Writing Fellow at the Iowa Writers' Workshop. She was formerly the editorial assistant at the New Statesman.

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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?