Time for Labour’s Gen X to step up to the plate

The next generation of Labour leaders cannot lean on the achievements of their predecessors.

This year marks the 65th anniversary of the end of the Second World War. As the baby boomer generation, born between 1946 and 1964, moves towards retirement, it's worth reflecting on what that means for British culture and politics.

The baby boomers have always had a clear enough identity. Politically, they fought great ideological battles. Culturally, they stood for rights and freedoms. The big question now concerns the generation that follows: how will we choose to define ourselves?

For my grandmother's generation, to reach the age of 65 was some distinction. Today, it may mark the beginning of decades of comfortable and active retirement. Baby boomers still dominate British society: pop svengalis, journalists and CEOs continue to do their thing, seeing the 65th birthday as an increasingly artificial rite of passage.

Yet gradually we are seeing a new generation beginning to make its mark as it takes up prominent positions in British society. The editors of both this magazine and its biggest rival are now Generation Xers. Jack Dorsey, the founder of Twitter, is 34, Mark Zuckerberg, his counterpart at Facebook, is even younger, and Gary Lineker has long since replaced Des Lynam on the Match of the Day couch.

Westminster faces its own version of this momentous shift as a generation of politicians is set to exit the stage. Of the 121 MPs standing down at the next election, nearly three-quarters belong to the baby boomer generation, born in the aftermath of the Second World War. Their likely successors are younger candidates, those who belong to Generation X, born in the late 1960s and 1970s.

The template. And the challenge

This has profound implications for Labour. For two decades, our party's leading lights have been drawn from the baby boomers: Tony Blair, Gordon Brown, Robin Cook, Jack Straw and Harriet Harman, among others. Today it leans heavily on that generation.

Peter Mandelson remains one of the party's finest political minds and its key strategist. Ken Livingstone has dominated city government for the past 30 years. Jon Cruddas continues to mine Labour traditions for intellectual renewal.

But Labour's baby boomers cannot be expected to win the next election single-handed. Nor should they be expected to shoulder the burden of shaping an agenda for a fourth term alone.

For Labour's next generation, it is a moment of reckoning. Having spent our early adult lives under Tory rule, we have been fortunate to reach political maturity in government. Now if we want a fourth term that makes a real difference to the country, it is time for my generation to step up.

In the short term, that means everything to win the most important election since 1997. Beyond that, it means having the courage to move beyond the assumptions of the past 16 years, and to consider what an energised and intellectually confident centre-left party looks like in modern Britain.

This need not come at the expense of loyalty. The template was set by Blair and Brown during the 1980s and early 1990s. Then, Labour's emerging leaders supported figures such as Neil Kinnock, Roy Hattersley and John Smith with loyalty, but also with new ideas and energy.

They were resolute in their support but showed no fear in asking challenging questions about the party's values and its direction.

The biggest challenge for our generation is to address the shortcomings of the baby boom era. The boomers help to tear down rigid social structures, creating a society in which all of us enjoy hard-won rights and freedoms.

But the liberation of the individual has helped to create a self-centred culture of consumerism and instant gratification. Our task is to help rehabilitate notions of mutual obligation, from parenting and family life to the co-operative and the employee mutual movement.

Mandela's children

Economically, baby boomers have benefited from the proceeds of rising house prices and generous final-salary pension schemes. But this has left younger generations to shoulder huge financial burdens. The question for us is how to spread asset ownership more fairly across social classes and between generations.

Baby boomers witnessed great battles between state socialism and liberal capitalism. But the credit crunch and recession remind us that Thatcherism was far from "the end of history". Our mission is to imagine a more civilised capitalism, with responsible banking but also space for family time, fair pay and decent work.

Gen X should be in a strong position to address these challenges precisely because our political upbringing marks us out from the baby boomers. Where the baby boomers so often saw the world in light and dark, our upbringing has been more nuanced and less certain.

This is the generation that reached adulthood as the Berlin Wall came down. We are the children of Ronald Reagan and Margaret Thatcher, but also of Nelson Mandela and Lech Walesa.

Politically, because Generation Xers grew to political maturity in the Noughties, we have a more objective view of New Labour's shortfalls as well as its achievements. Often we are more wary of the tribal politics of the 1970s and 1980s, and therefore more receptive to working beyond traditional party lines. This speaks not just to a need for electoral reform, but also to the need to build a movement of the left that connects with allies and potential supporters outside our party.

In a more secular world, our generation must start forging a more moral discourse that gets beyond pledge-card politics and speaks to people's values and identities. Our job is to move beyond the technocratic language of "what works". It is to lead rather than follow public opinion on issues such as equality and climate change.

Such a challenge demands that we grasp the possibilities of many-to-many communication, understanding that the era of "command-and-control" political communication is over.

Earn your rights

David Cameron's Conservatives serve as a cautionary tale. Their sense of entitlement is barely concealed as they cross off the days to a general election. Yet every day their platform looks thinner.

Progressive Conservatism has given way to tax breaks for a wealthy few. Modern Conservatism has been stamped out by a return to "back-to-basics" family tax breaks. "Vote blue, go green" is laughable, given that Tory candidates rank climate change bottom of their list of priorities.

Whether the Tory leadership ever really believed these things does not really matter; what we should learn is that intellectual renewal is not easy and it takes courage.

For Labour's Gen X, this is a decisive moment and a unique opportunity to shape the political agenda for the next decade. We must seize the opportunity, or we will lose it. No individual or group has an inalienable right to our party's future.

Already, a younger generation of talented, committed campaigners is emerging. PPCs such as Chuka Umunna, Rachel Reeves and Stella Creasy will be huge assets to a party that may well decide to skip a generation.

The next generation of Labour leaders can no longer lean on the achievements of its predecessors or live in their shadow. Nor can we harbour what is often seen as a sense of entitlement. The right to govern must be earned and won.

We can no longer afford our politics to be bogged down in the minutiae of public-service reform or the finer points of the tax credit system. We need to start contributing to bigger questions about where the country is heading and what type of society we want to live in.

Gordon Brown, Peter Mandelson and Harriet Harman will all still be there after the election, but they have carried the rest of us for too long now.

David Lammy is the Labour MP for Tottenham and the higher education minister.

David Lammy is Labour MP for Tottenham

Getty
Show Hide image

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?