In this week's New Statesman: India - The economic miracle implodes

William Dalrymple on India: can it ever become a superpower? PLUS: Sophie Elmhirst profiles Ai Weiwei and an "Autumn Books" special in the Critics.

Rafael Behr: Cameron fantasises about the next big push while the troops struggle

In the Politics Column this week, Rafael Behr rounds up lessons learned from the annual party conference season. From feel-good speeches to “pleb” badges, here are the takeaway messages:

Liberal Democrats miss the moral high ground

While the junior coalition party was meeting in Brighton, headlines were dominated by tales of Andrew Mitchell, the Conservative Chief Whip, allegedly calling a police officer a “fucking pleb”. Many Lib Dems didn’t seem to mind their demotion down the news agenda. They revelled in Tory discomfort at the episode. Ministers made “pleb” jokes in their speeches. “I’m a pleb” badges became a must-have conference accessory . . . The party is “battle-weary”, in the words of one senior adviser. “[Lib Dems] long to feel good about themselves again.”

Ed Miliband really is the leader of the Labour Party

Ed Miliband delivered his big speech in Manchester with a thespian fluency of which many had previously thought him incapable . . . It gave delegates hope that they might actively promote the idea of the Labour leader as a potential prime minister instead of dodging accusations that he doesn’t fit the part . . . The sceptics in his party are not entirely won over. They acknowledge that he has proved capable of raising his game but doubt that he can keep it up.

Morale is low on the Conservative front lines

The impatience of many Tory MPs… is well known . Such ingratitude is part of a cycle that began when David Cameron failed to win a majority in 2010 and that systematically erodes his authority. Common complaints are that the party machine is rusty, that its central office is staffed with lightweights and that Labour campaign teams are more motivated and better organised.

These are not gripes about ideological direction: they are the grumbles of a demoralised infantry whose commanding officers are miles from the front, fantasising about the next big push and apparently unaware that their ill-equipped troops are struggling just to hold the line.

Read the piece in full, published online here.

 

William Dalrymple: After the blackout

India has long been hailed as the world’s next great superpower, notes the historian William Dalrymple in this week's cover story:

For over a decade now, India has marketed itself as the coming superpower, placing itself in the same league as Europe and the United States, and hyphenated with China as the dominant force of the near future. Indian futurologists have projected that China will overtake the US in gross domestic product between 2030 and 2040, and that India will follow suit by roughly 2050.

Yet Dalrymple has doubts. He finds a country questioning if it will ever become the powerhouse many promise it will be. From the power outage this summer that left 700 million people in darkness, to larger issues of wealth imbalance and crippling poverty, he probes the issues in the way of India’s rise to superpower:

How far Shakti Dehra was typical of a much wider scenario in India became clear this August after the country suffered what the international media soon christened “the largest power blackout in human history”. India’s creaking electricity grid had finally collapsed in the middle of the hot summer, due to the load of supporting hundreds of thousands of air-conditioners, and had supposedly plunged 700 million people across 21 of India’s 28 states into darkness.

India carried on much as it usually did: it muddled through. It was able to do this as the government provision of power is always so inadequate that the rich all have their own generators or “inverters” – a sort of giant rechargeable battery that can keep the fans going until power returns – while most of the poor get so little electricity anyway that its disappearance was barely noticed: of the 700 million people allegedly left powerless, in reality only 320 million had electricity in the first place.

What the power failure did was expose to international scrutiny the scandalous state of Indian infrastructure and the failure of the Indian state a full 65 years after independence to provide even the basic necessities for modern life across most of the country. It also highlighted the growing sus­picion that India’s dream of a rapid rise to the international top table might be just that – a dream.

 

Ai Weiwei: "If someone is not free, I am not free" - a profile of our next guest editor by Sophie Elmhirst

For the NS Profile, Sophie Elmhirst spent a week at the Beijing studio of the artist Ai Weiwei, the next guest editor of the New Statesman. Ai’s special issue will be published next week, 19 October.

Reacting to a Beijing court’s refusal last month of his appeal against a £1.5m fine imposed on his design company for “tax evasion”, Ai says the entire legal process has been deplorable. “The company could not place inquiries about the case or defend itself,” he says. “Our side of the story has not been heard in the trials. Not only did the authorities have no respect for the law and violate all the legal procedures as the case proceeded, they failed to provide any hard evidence for the charges they made.”

Ai also recalls that “from the beginning the tax case is doomed and everyone involved knows it”.
The police, he says, told him in private that “their aim was to discredit me because I criticised the government publicly”. When he challenged them about why the state couldn’t address his dissidence directly rather than impose a fine, they told him that people in China listen to him and often agree with him, and that imposing a fine would more “effectively damage my reputation and popularity”.

Of his reasons for continuing to protest against the actions of the Chinese government, Ai says:
“If someone is not free, I’m not free . . . If artists cannot speak up for human dignity or rights, then who else will do it?”

He is aware of the dangers to himself, but maintains that he will keep fighting injustice and oppression as long as he can:

“I always have to question myself . . . what happens if I spend the rest of my life in jail? Or what happens if I can never travel again? Can I afford to do that? I think, still, there is something I can do . . . As a living creature, you have to prove what you can do.”

 

Mehdi Hasan: Being pro-life doesn’t make me any less of a lefty

In Lines of Dissent, Mehdi Hassan sticks out his neck and declares: “I’m a lefty, but I’m with Jeremy Hunt and Christopher Hitchens on time limits for abortion.” He compares his stance with the liberalism of Hitchens, writing:

It has long been taken as axiomatic that in order to be left-wing you must be pro-choice.Yet Hitchens’s reasoning was not just solid but solidly left-wing. It was a pity, he noted, that the “majority of feminists and their allies have stuck to the dead ground of ‘Me Decade’ possessive individualism, an ideology that has more in common than it admits with the prehistoric right, which it claims to oppose but has in fact encouraged”.

Abortion is one of those rare political issues on which left and right seem to have swapped ideologies: right-wingers talk of equality, human rights and “defending the innocent”, while left-wingers fetishise “choice”, selfishness and unbridled individualism.

He refutes the claim that being pro-life means being “anti-women” or “sexist”:

For a start, 49 per cent of women, compared to 24 per cent of men, support a reduction in the abortion limit, according to a YouGov poll conducted this year . . . Then there is the history you gloss over: some of the earliest advocates of women’s rights, such Mary Wollstonecraft, were anti-abortion, as were pioneers of US feminism such as Susan B Anthony and Elizabeth Cady Stanton...

In recent years, some feminists have recognised the sheer injustice of asking a woman to abort her child in order to participate fully in society; in the words of the New Zealand feminist author Daphne de Jong: “If women must submit to abortion to preserve their lifestyle or career, their economic or social status, they are pandering to a system devised and run by men for male convenience.

I’m not calling for a ban on abortion; mine is a minority position in this country. What I would like is for my fellow lefties and liberals to try to understand and respect the views of those of us who are pro-life, rather than demonise us as right-wing reactionaries or medieval misogynists.

 

In the Critics: An Autumn Books Special

It’s the Autumn Books special in The Critics this week. Our lead book reviewer is Jonathan Powell, Tony Blair’s chief of staff from 1995 to 2007. Powell reviews Kofi Annan’s memoir, Interventions. “I don’t think Annan has anything to apologise for,” Powell writes. “The problem is not with the man but with the international community.”

The former Conservative foreign secretary Douglas Hurd also considers the future of the international community in his review of Governing the World by Mark Mazower. “The UN has endorsed the notion of ‘the responsibility to protect’,” Hurd notes. “As on many similar occasions, the baptismal name is misleading. The responsibility to protect is not so much about protection as about intervention.”

In the Books Interview, Jonathan Derbyshire talks to D T Max about his biography of the late David Foster Wallace, and in her Personal Story, the American novelist A M Homes explains how growing up amid the tumult of Nixon-era Washington, DC shaped her fiction. “It was a strange time and place to be a child,” she writes. “A multilayered existence with shifting standards, exceptions and different rules for different people.”

 

Elsewhere in Autumn Books

The business editor of ITV News, Laura Kuenssberg, reviews John Gapper’s Wall Street thriller, A Fatal Debt;  the NS’s pop critic, Kate Mossman, reviews Philip Norman’s biography of Mick Jagger; the poet Christopher Reid on The Collected Poems of Samuel Beckett; Linda Grant enjoys Colm Tóibín’s retelling of the story of Mary, mother of Jesus; and much more.

 

Elsewhere in the NS

Ryan Gilbey is impressed by Walter Salles’s adaptation of Jack Kerouac’s On the Road; Rachel Cooke reviews the BBC2 documentary I Was Once a Beauty Queen; and Antonia Quirke is entranced by a Radio 4 programme about the Irishness of Bram Stoker’s Dracula.

PLUS: Will Self on Jimmy Savile in Maddness of Crowds

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?