The precarity of the global 99%

What The Global Fund's decision to cancel next year's funding round means for victims of Aids, TB an

In Europe and the US there is a lot of talk of austerity these days. But elsewhere in the world, the financial realities of our age of insecurity are leading not to belt-tightening but to malnutrition and disease. And things look set to get a lot worse yet.

This week's unprecedented announcement by The Global Fund to Fight Aids, TB and Malaria to cancel its next funding round is a case in point. It reveals just how precarious daily life has become for the global 99 per cent: those whose very health, as much as their job security, is pegged to the rise and fall of the money markets.

The Global Fund has for years been one of the most important fronts in the battle to beat back HIV/Aids. It has helped put 3.2 million people on anti-retroviral therapy (ARVs). But it has been running on empty for a year now, since securing just $10 billion -- half of what it hoped for -- during a major funding replenishment a year ago. Some countries also recently cut their pledges owing to concerns about the way the Global Fund is operated.

Ten billion dollars sounds like peanuts in comparison to the bank bailouts we have gotten used to in recent years -- it's about the same amount that Goldman Sachs has cheerfully set aside in bonuses again this year.

But it was the minimum figure that the Global Fund required from rich countries to sustain the many medical programmes it supports around the world. And with those countries failing to meet even downsized pledges in October, the Global Fund concluded this week, after a heated and difficult board meeting in Accra, Ghana, that it had no choice but cut the funding lifeline.

Instead, it has put in place an emergency '"transition mechanism" to safeguard the most needy, but this is no more than a tin roof over the heads of some in a rapidly worsening storm. The fact is that sooner or later people are going to be kicked off existing treatment programmes: this is already happening in Swaziland, which recently decided to forego Global Fund support and, as a result, has simply run out of drugs.

The Global Fund's apparent demise could hardly come at a more crucial time. The last couple of years had seen greater optimism in the battle against Aids. Thanks to internationally funded programmes, the number of people on ARVs had increased by 20 per cent since 2009, and many had begun looking forward to a generation free of HIV. "We have an historical opportunity now with treatment as prevention to push back against HIV," Marius Trosied, a doctor with Médecins Sans Frontières told me just a few weeks ago. But such claims require solid revenue streams to back them up. It is now far from clear how even the 7.7 million people the Global Fund claims to have already "saved" will fare in the years to come.

South Africa and Kenya have already been told they are ineligible to apply for funds this year, despite both only having treatment coverage rates of around 50 per cent.

And in Malawi, which had ambitious plans to scale up treatment provision, the question now is all about how best to manage a treatment scale-down. That is global health speak for a process of triage to determine who lives and who dies.

The root problem is not just the banking and financial crisis, says David McCoy, a public health specialist at UCL: "What is happening to the Global Fund ought to concentrate the minds and efforts of public health workers all across the world on the need to change the broader social and economic institutions within which our fragile health programmes are located."

McCoy is right: the precarity of individuals is ultimately a function of the precarity of the institutions that sustain them. That is as true in Europe and the US -- where we are seeing jobs lost, services cut, and shops boarded up along our highstreets because our institutions and systems of government do not protect us equally from the vicissitudes of the market -- as it is in global health. But of course the two are related, and some individuals are more vulnerable than others.

So when life-saving organizations like South Africa's Treatment Action Campaign declare that, because rich countries now feel they can afford to give less, they too may be forced to shutter up the premises next year, then we have to recognise that the politics of austerity we are going through has not even begun to be properly costed. This is the real lesson of the Global Fund's demise and it will require much more than simply getting wealthy donors back on board to address it.

Simon Reid-Henry is a lecturer at Queen Mary, University of London

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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?