The Lib Dems can keep the lights on

Simon Hughes responds to Mark Lynas and defends his call for an independent inquiry into nuclear pow

Delusion is not a necessary consequence of becoming a Conservative supporter. Yet in Mark Lynas's case this seems to have been one of the results. Lynas's attack piece on Liberal Democrat energy policy was one of the most delusional pieces of writing I have read in a long time, and utterly lacking in foundation.

Lynas accuses me of ignoring the "science" and laments my comments on BBC Radio 4 on the health effects of nuclear power. According to him, there is no plausible scientific case for this.

I presume he refers to my call for an independent inquiry into the "justification" for nuclear power. "Justification" is the process of assessment of the health effects of nuclear power and is a legal requirement before any new nuclear plant can operate in the UK. One of the means by which it can be carried out is through a public inquiry.

The purpose of my call was precisely so that scientific evidence could be examined in the open, and that nuclear scientists, other experts and the public can participate in the decision-making process for new nuclear power in a meaningful way. This call was supported by roughly 80 leading research academics and nuclear scientists in the UK.

If Lynas is so convinced that the health detriments of nuclear are simply an urban myth as he claims, he too should have no problem with a public inquiry. He may however also know that the nuclear power lobby is worried that since the publication of the KiKK study by the German government in 2008 "justification" may not survive more detailed scrutiny.

The KiKK study found that there was a doubling of the incidence of childhood leukaemia within five kilometres of every single German nuclear power station. The study is considered to be one of the best and most complete scientific examinations carried out into the effects of nuclear reactors on public health. It clearly passes the plausibility test.

Perplexing preference

The Lynas article also makes the alarmist and unfounded claim that if Liberal Democrats are in government and nuclear power is dropped, the lights will go out. This is not just a difference of opinion; it is objectively untrue. With the best will in the world there will not be a new nuclear power station built in this country within seven years.

The power stations coming offline over the next decade meant that we need new power generation to come online to replace them before that. With the huge capital costs of nuclear (current estimates are that each reactor will cost not less than £5bn), and the investment this would take away from other sources, nuclear power could actually hinder our chances of bringing the necessary new sources of energy online.

Lynas commends Conservative energy policy and criticises Labour for dragging its feet. I find this perplexing. Lynas has been involved in and written about energy issues for many years now. He therefore must know that in 2006 David Cameron was criticising Labour's commitment to nuclear power as irresponsible. He must also know that as recently as six months ago Zac Goldsmith was saying that no new nuclear power stations would be built under a Tory administration.

If the industry is looking for political stability, it would do a lot better than to look to the Conservative Party.

Need for action

I could go on. I could talk about Lynas's use of the somewhat distasteful phrase "closer to normal mortality rates" to describe the many cancer victims recorded in the vicinity of Chernobyl, or the huge economic and safety concerns surrounding nuclear waste, or the fact that nuclear power is the least cost-effective way of reducing carbon emissions.

But the real problem with his article is that polemics of this kind are exactly what has eroded public confidence in the need to combat climate change. I and others who are fully convinced of the necessity of action on climate change need to get out and about more, engage with the public and make the case.

We need to demonstrate that the decisions that we make are based on the strongest possible evidence and foundations of scientific inquiry. We are not helped by people like Lynas, who claim to be the guardians of "science" while making personal attacks on anyone who dares to disagree. In the end, the only people they discredit are themselves.

Simon Hughes is the MP for North Southwark and Bermondsey. He is the Liberal Democrat shadow secretary of state for energy and climate change

UPDATE: Read Mark Lynas's response to Simon Hughes's article here.

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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?