Youth unemployment must be addressed

Politicians are right to condemn the rioters but wrong to see this as an alternative to trying to un

After a fourth night, relatively quiet in London but violent in Manchester and Merseyside, it is too early to say if the riots are on the wane. But the search for answers has only just begun.

Twitter has proved its value for authentic updates from the street, but also its limitations as a forum for serious debate. Mainstream commentators joined the chorus that "something must be done", ignoring the fact that most of the options for "doing something" fail the most important test -- excessive risk of making a bad situation worse.

We should not "send in the Army": they are excellent at what they are trained and equipped to do, but that doesn't include unarmed public order policing. We should also think twice before calling for the Met to issue officers with plastic bullets and water cannon -- not least since these weapons can only be used by specially trained units and it is already clear that getting particular units in the right place at the right time in such a fast-moving situation is one of the things which has proved most difficult.

As for a curfew, this might sound like a good idea, but it brings the risk of an already stretched police force being taunted if they fail to enforce it, further undermining their authority while reinforcing the sense of crisis among ordinary Londoners.

The febrile debate has not been helped by the lack of political leadership. It should have been clear to the politicians by Sunday at the latest that this was not just the annual summer game of journalists trying to drag them back from the beach. But it was another 36 hours before they started to engage, and they have been struggling to catch up ever since.

Not all of their ideas have been wrong: in the short term, the Prime Minister was right to urge the police, prosecutors and courts to work together to impose swift and exemplary sentences; and in the longer term, the Mayor was right to call for the recruitment of more mentors for troubled youngsters, and more black and ethnic minority officers.

However, the main message has been to condemn the behaviour of individual rioters and to promise a greater police presence on the streets. Both are right but neither is enough.

Visible police presence matters but so do their tactics. Public order policing is an art as much as a science, involving inherently difficult judgments about the degree of aggression and force to be used in a particular situation. Sympathetic commentators have noted, rightly, that the police tend to get criticised either way. Two years ago, Her Majesty's Inspector of Policing, Sir Denis O'Connor, was widely praised for his report following the G20 protests when he said that the police "risk losing the battle for the public's consent if they win public order through tactics that appear to be unfair, aggressive or inconsistent."

It is not inconceivable that a more confrontational police response to the initial protest in Tottenham would have elicited a similar reaction.

Two years ago, the BBC were also talking about how public order policing has become even more difficult as "technology is changing protest: flash mobs appear by text message... and all of them download their legal rights from the web - and upload videos of officers who they think are doing wrong".

But whatever the difficulties, there were too many places on Sunday and Monday where the public ended up watching, on television or in person, as the police stood off from trouble rather than confronting it. There is a logic to these tactics, which people are starting to realise: the aim is to avoid inflaming the situation, wait for the worst to pass, and then use CCTV to round up the protagonists. The problem is that in the meantime, the defining moments of the crisis have come and gone.

All this is easy to say this from the comfort and safety of a commentator's desk and with the benefit of hindsight - but it remains true, and something the police will have to bear in mind for the future. Of course, more aggressive tactics bring risks of their own and the police will hope that if those risks materialise, the commentators and politicians who have been urging greater aggression will be equally clear in their support.

In the longer term, the government and the public need to accept that there is a limit to what the police can achieve in the face of such widespread, unfocused disorder. These days people just tend to assume that responding to major threats to public safety is entirely the job of the government, the police, the security services, the Armed Forces, and so on. Some have traced this mindset to the Cold War, when admittedly there was little citizens or communities could do in the face of an existential nuclear threat, and 'national security' became synonymous with authority and secrecy.

The trend has continued with the rise of terrorism, where arguably communities can and should play a greater role, and also with the rise of organised crime, and arguably with events like this week's riots. Politicians need to tread carefully here: suggesting that people take action themselves can invite ridicule, or worse -- especially for a government committed to deep cuts to police numbers.

But regardless of police numbers, we need to start asking ourselves how we can support individuals and communities to do more themselves, either to reduce the risk of events like this week, or to respond better when they happen.

As for condemning the rioters, it goes without saying that their behaviour is immoral, destructive, and counter-productive for the areas in which they live. But is it really "criminality pure and simple", as the Prime Minister said yesterday? Yes, in the sense that it has long since detached itself from the original trigger, of local discontent at the shooting of a man by the police. As one woman in Hackney famously put it, confronting the looters: "we're meant to be fighting for a cause, not thieving from Foot Locker" -- a sentiment and soundbite that community leaders would struggle to improve on.

But while it is clearly criminal as opposed to political, it cannot be criminality "pure and simple", as the Prime Minister suggests, because the pattern is clearly not random nor indeed typical of ordinary criminality. This week's riots are different in many ways from the riots in the 1980s but in other ways they are very similar, including many of the same locations, in Tottenham, Brixton, Toxteth, and Birmingham. And while of course economic hardship doesn't justify looting -- to say it does is an insult to the many young people in these areas and elsewhere who strive to overcome that hardship without resorting to crime -- it is a mistake to think that condemning the rioters is an alternative to trying to understand them.

This is not about "moral relativism", as Michael Gove would have us believe: it is about evidence-based policy and the responsibilities of government. Unless the authorities are confident that a crime is a one-off, it is their duty to try to understand. This was one of the key questions raised by the recent killings in Norway: was this a one-off tragedy committed by a uniquely disturbed individual or was it a sign of a new trend of similar attacks -- and if so, what could be done to try to pre-empt this?

In relation to everyday crime, the same question was posed by David Cameron himself in his early incarnation as Conservative leader when he argued that "understanding the background, the reasons, the causes... doesn't mean excusing crime but it will help us tackle it... This behaviour is wrong, but simply blaming the kids who get involved in it doesn't really get us much further."

"Understanding the background, the reasons, the causes" is a complex task involving psychological, social, and cultural factors. Take something as mundane as boredom: clearly it is not an excuse but does anyone believe it is not a factor? Many of the rioters are far younger than their counterparts in the 1980s. Surveys of young people find 8 in 10 saying they have little to do outside school, and no one is surprised when youth anti-social behaviour and petty crime increase during the long summer holidays -- so how surprised can we be when the same young people provide the footsoldiers for a riot? This is not a new problem but it is likely to get worse with the cuts to youth services, as the Guardian reported long before the riots struck.

It is economic factors, however, which are the most significant. Again, youth unemployment is not an excuse for criminality but does anyone believe it is not a factor? Youth unemployment fell slightly in the most recent figures but remains historically high at around 20 per cent. IPPR analysis last year showed that unemployment was even higher among young black people, close to 50 per cent.

More recent research by IPPR last month highlighted the particularly worrying trend in long term youth unemployment. Again, this is not a new problem: after significant falls through the late 1990s and early 2000s, long term youth unemployment began to rise from 2002. But it rose far more steeply after 2009. Around ten years ago, roughly one in ten of 18-24 year olds had been unemployed for a year; according to the latest figures it is now one in four, and higher still among young men.

The rise in long-term youth unemployment
(% unemployed over 12 months, by sex)

A

Along with others, IPPR has been warning about the lifelong costs of long term youth unemployment -- a generation suffering for the rest of their working lives from poor job prospects, low skills and repeated spells out of work -- based on the experience of the 1980s. In this context it is not "opportunistic", or "political", to note that the riots bring another, more acute reminder of that same decade.

The government's plan for tackling youth unemployment is a range of apprenticeship and work experience programmes, underpinned by private sector economic growth. That growth looks ever more fragile, and at the same time tuition fees are being increased, funding for colleges and skills training has been cut, and the Education Maintenance Allowance has been abolished. The young person's job guarantee -- a temporary measure aimed at mitigating the scarring effects of long term unemployment -- has also been scrapped. Long before this week's riots, IPPR has been urging the government to think again and act urgently to open up education and job opportunities for young people.

Unemployment is not an excuse, but ministers looking for something to say as they tour the trouble spots should consider -- alongside a U-turn on cutting police numbers -- the powerful message it would send if they announced a guaranteed job at the minimum wage for all young people who have been out of work for a year.

Matt Cavanagh is Associate Director at IPPR www.ippr.org
Follow him on Twitter @matt_cav_

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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?