In this week’s New Statesman: The fight for the Church of England’s soul

George Pitcher writes on Rowan Williams, the political church, and who comes next. PLUS: John Bercow, the runaway speaker.

George Pitcher: Between church and state

In our cover story this week, former public affairs secretary to the Archbishop of Canterbury George Pitcher considers the question: just how separate are piety and politics?

He examines the tenure of the politically vocal Dr Rowan Williams, newly valedictorian Archbishop, and asserts the qualities of a worthy replacement: “William’s successor must be someone of personality and guts.”

 As a larger consideration, he asks: “just how political is the role of archbishop of Canterbury”? He writes:

We start, therefore, with a paradox – the Church of England is deeply rooted in British political life, yet it transcends party politics. Williams has managed this difficult relationship with the nation’s politics remarkably well. With carefully chosen interventions, the outrage of politicians and in some quarters of the media may be seen to have demonstrated that he has got this aspect of his job bang on.

[...]

He has spoken out frequently against welfare cuts, successfully fronted the campaign to prevent the government selling off our national forestry to its mates as tax dodges, quietly held David Cameron’s feet to the fire over his “big society” rhetoric, criticised our policies on Europe and, of course, caused a minor storm in Westminster with a leader comment on the quality of our political life when he guest-edited the New Statesman in June last year.

It’s a tough act to follow. Whoever succeeds him in the early days of 2013 will need to maintain the momentum that Williams has established, without being taken hostage by any parliamentary faction. It’s a prospect complicated by the politically atypical nature of the Christian world-view. If one is to generalise, Christian politics are often economically progressive and socially conservative.

 

The NS Profile - John Bercow: “I’ve never liked little cliques”

In our lead interview this week, Jemima Khan meets Speaker of the House of Commons John Bercow: “misfit”, “thorn in the side of David Cameron” and “punchbag for the right-wing press”.

Having notoriously endured the worst of the parliamentary “playground” culture - juvenile personal insults and boy’s-club cliques – his hard earned high rank,  historically weighty position and his permission to punish outspoken ministers are, as Khan puts it, “a nice two fingers up at the bullies, snobs and anti-Semites he has encountered in his life so far.” Red an exclusive extract here.

 

Andrew Adonis: Bury the past

In our NS Essay, Labour Peer and former schools minister Andrew Adonis draws out a new manifesto between private and state education. The division between state and private education is deeply entrenched, but why should it be? Adonis proposes an end to separationist policy, stating that a system of sponsorship would improve education for all. He begins:

Two of the greatest challenges in English education today are, first, not just to reduce the number of underperforming comprehensives but to eradicate them, and second, to forge a new settlement between state and private education.

I put these two challenges together because they go together. It is my view, after 20 years of engagement with schools of all types, that England will never have a world-class education system or a “one-nation” society until state and private schools are part of a shared, national endeavour to develop the talents of all young people to the full.

The two also go together, in that academies are at the heart of the solution to both challenges. It is academies that are systematically eradicating failing comprehensives. And academies – as independent state schools – are the vehicle by which private schools can become systematically engaged in establishing and running state-funded schools.

So, just as the challenge is simple – how to unite state schools and private schools in a common endeavour – I believe the solution is also simple. Every successful private school, and private school foundation, should sponsor an academy or academies. They should do this alongside their existing fee-paying school or schools, turning themselves into federations of private- and state-funded independent schools and following the lead of a growing number of private schools and their foundations that have done precisely this and would not think of going back....

 

Rafael Behr: Cameron’s own backbenches land deadlier blows on him than labour

From the Politics Column this week: Rafael Behr examines David Cameron’s tendency, if not to “lurch”, then at least to gently “sashay” away from his proposed line of policy:

Labour consistently overestimate Cameron and Osborne’s intellectual rigidity. All the evidence shows they change their minds with ease. The u-turn is their most practised manoeuvre. Ed Miliband likes to attack the Prime Minister for what Labour imagines him to believe. Conservative MPs have the better measure of their leader, disliking him for not really believing in anything at all.

Cameron’s lack of a creed was once an asset. It persuaded many voters that he was a reasonable man, distinct from the fanaticism of old Tory caricature. It flummoxed Labour. But the gap has gone too long unfilled. The path to a governing purpose has been too meandering; no lurches, just a sashaying sequence of tactics to grab and hold power, accompanied with a complacent expectation that the party will tag along. But a growing number of MPs don’t believe Cameron’s way can work – a prophecy that fulfils itself. Whenever Tories pop up to say their leader is fumbling in the dark for answers, they obstruct the Downing Street searchlights. The louder they call Cameron a loser, the truer it becomes.

 

David Blanchflower: Yet more dubious promises from the Republican fantasist brigade

From the Economics Column this week: David Blanchflower writes from America - a searing review of Republican National Convention, Paul Ryan’s “unusual” budget proposal, current employment figures and Romney’s “bold” claim to create 12 million jobs in his first term:

Paul Ryan’s budget appears to be a classic example of a Keynesian stimulus, although of an unusual kind. The Republican vice-presidential candidate is in favour of huge public spending cuts on Medicare, Medicaid, food stamps and student grants, to name but a few. Plus, huge tax cuts on the rich so that Mitt Romney and his various billionaire supporters would get richer while the poor would get poorer. In addition, Ryan wants a $2trn increase in unspecified defence spending that the Pentagon has made clear it doesn’t want. Romney and Ryan would not raise any taxes but they say they would close unspecified tax loopholes. These could include mortgage and retirement tax relief, which would be hugely unpopular. So Romney not only refuses to release his tax returns but will not say how he intends to fund his tax cuts. This was all made clear to the American people by Bill Clinton, whose recent Democratic convention speech was an economics masterclass.

 

Jon Cruddas reviews Bloody Nasty People: The rise of Britains far right, by Daniel Trilling

Why bother with the BNP?” asks Jon Cruddas in his review of Daniel Trilling’s Bloody Nasty People, “...why write a new text on the growth of the far right? Isn’t it in free fall?”

But within the pages of Trilling’s investigation of radical right groups like the EDL and the BNP - and the central anecdotes at the heart of their ascension in the British political mainstream - Cruddas finds cause for consideration, such as the failed Commission on the Future of Multi-Ethnic Britain back in 2000 and the Bradford, Oldham and Burnley race riots in 2001. He concludes:

BloodyNasty People walks us through the various sites of contest across England. It offers sharp portraits while also keeping an eye on the increasingly harsh tone of political language driven by fear, polling and press dynamics...Despite our post-Olympic glow, Trilling’s book is a useful reminder of our Balkanised political landscape.

 

Elsewhere in the New Statesman

Jonathan Portes - director of the National Institute of Economic and Social Research and a former chief economist at the Cabinet Office - lays into the “factual errors” and “slipshod research” that pervade Britannia Unchained: Global lessons for growth and prosperity, a new text authored by five conservative MPs calling for an overhaul of the “idle” British work ethic and benefits culture. Further on, Simon Heffer - in Books - dissects Britannia Unchained in our lead review piece. “This book deserves to be taken seriously by all with an interest in politics,” Heffer writes. “It especially deserves to be taken seriously by the clique of complacent, trust-funded PPE graduates who call the tune in the Tory party.”

In The Critics section of this week’s New Statesman, poet Julia Copus examines literary representations of house and home. “Our sense of past self,” she writes, “is often so closely connected with the house we lived in at the time as to be inseparable from it.”

In the Books interview, Jonathan Derbyshire talks to Michael Chabon about his new novel Telegraph Avenue, set in a racially mixed section of Oakland, California. “I felt I’d been away from consensus, from reality in my fiction,” Chabon says. “Not since 1995 had I set a novel in a world that was more or less recognisably the world I was living in.” Also in books: Sarah Churchwell eviscerates Paul Auster’s Winter Journal.

PLUS: Ryan Gilbey on Woody Allen’s partial return to form, Felicity Cloake on why oysters are best enjoyed naked, and Will Self plunges deeper into strange America in Madness of Crowds.

All this and more in this week's New Statesman, on newsstands around the country and available for purchase here

Charlotte Simmonds is a writer and blogger living in London. She was formerly an editorial assistant at the New Statesman. You can follow her on Twitter @thesmallgalleon.

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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?