The case for eliminating the US electoral college

It would help do away with the repulsive, petty, and hysterical localism of this cycle's campaigns.

It would appear a consensus of a kind has been reached and that, as such, this particular US election cycle is indeed the dirtiest and most debauched in decades. Dan Balz in The Washington Post bemoaned that there has been “no check on rhetoric” from either campaign – “the guardrails have disappeared and there is no incentive for anyone to hold back”. Chuck Todd of NBC complained of “third-grade insults”, while long-time observer Brit Hume on FOX summed it all up when he said: “This is about as ugly as I’ve seen it get”.

Obviously, as an act of historical comparison, this feeling does not pair well with fact. Every campaign is the filthiest ever witnessed, as the American people are tortured by some new awful electoral tactic: Willie Horton in 1988; Medi-scare in 1996; and swiftboating in 2004. Crude politicking has been integral to campaigning since the very birth of the republic, when Thomas Jefferson and John Adams attacked each other vociferously for their closeness to the French Revolution on the one hand, and monarchist tendencies on the other.

This despondent national mood, however, does point towards a more significant truth: that the electoral process itself has become corrupted. Much has been made of the impact of Super PACs, but more noteworthy than their outrageous ads is where they are being aired. The Associated Press reported earlier this month that $350m has been spent on ads thus far in only nine states, including Ohio and Florida.

The sort of national dialogue columnists like Tom Friedman have been hankering for cannot flower because the electoral system allows campaigns to burn all their resources in a handful of swing districts, ignoring vast “safe” swathes of the country, including essential states like Texas, California, and New York. The solution to elevating the discourse, then, is the elimination of the US's electoral college.

The original sin of the electoral college is that it was intended to discourage democratic mass participation, leaving critical decision-making powers in the hands of a few. The effect of applying this antiquated model outside the thirteen colonies has been the emergence of a two-party system where presidential elections have been won without capturing the popular vote (George W Bush in 2000 being the most recent example) and the share of the electoral college gained fails to match the share of the national vote (as when Ronald Reagan won 51 per cent of the vote but 91 per cent of the college in 1980).

This state-centric model has also created an ugly swath of Republican and Democratic fiefdoms. In 2004, George W. Bush took 71 per cent of the vote in Utah, while John Kerry captured 90 per cent of votes in the District of Columbia. Vast areas of the United States suffer from wasted vote syndrome as a consequence, a condition best expressed by a recent letter in USA Today which asked: “In red-state Utah, if one doesn't vote Republican, why bother?”

As such, the absence of a national discourse can be directly attributed to the electoral college, for the selection of the president is not decided by the country at-large but by 916,643 so-called undecided voters in six swing states. Hence, shows research conducted by National Journal, both camps have invested the majority of their resources in only three venues: $67m in Florida, $63m in Ohio, and $45m in Virginia. In North Carolina – which fell into the Democratic column in 2008 and is very much in-play this time around – Republicans have outspent Democrats by almost exactly a two-to-one ratio. The unscrupulous tone of the advertisements and the coarsening of the discourse more widely is merely a reflection of the desperation both campaigns feel regarding the need to win over these voters.

The total elimination of the electoral college would go some way towards ridding campaigning of this sort of repulsive, petty, and hysterical localism which is stunting the growth of a national conversation, and hindering broader political developments which might be good for the country if bad for certain constituencies. It is at present nigh-on impossible to discuss the need to rid the budget of costly and counter-productive farm subsidies in order to reduce the deficit, since any candidate who does so would fear throwing away a swing state like Iowa.

And then there’s Medicare and Social Security, which remain third rails in American politics because neither Democrats nor Republicans would want to endanger their chances of capturing the 29 electoral votes Florida has to offer. Thus the country wastes away while voters in Miami-Dade are reduced to watching mendacious adverts from the Romney campaign which accuse President Obama of plundering $716bn from Medicare in order to pay for Obamacare.

The punditocracy very much wants a cleaner, more intellectual campaign but as far has not presented a workable solution which might help tidy things up. Ending the electoral college cannot rid American politics entirely of dirty tricks, but it would be a pretty good start.

 

A joint session of Congress meets to count the Electoral College vote from the 2008 presidential election. Photograph: Getty Images

Liam Hoare is a freelance writer, specialising in foreign affairs, whose work has featured in The Atlantic, Slate, and The Forward.

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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?