The bizarre sound of Tories crying "Trot"

Conservative ministers' habit of denouncing critics as lunatic ideologues says more about their own

If anything encapsulates just how out of touch those at the top of the Conservative Party are it is their bizarre use of language, in particular the bandying about of "Trotskyite", which this week was once again used indiscriminately in connection with the Workfare scheme. Defaming political enemies is as old as the disreputable business of politics itself, but over the past year or so it has been possible to detect a concerted and probably co-ordinated attempt by the Conservatives to label non-conformists as extremists and ideologues. But it is a tactic built on sand and it has already begun to fail.

Michael Gove was one of the first big hitters to test it out when last month he attacked the opponents of his academy schools programme in Haringey as "Trots". These Trots, i.e. parents, had the temerity to want to stay under the control of the local authority and were branded "bigoted" and "enemies of promise" for their trouble. George Osborne uses the emotive phrase "deficit deniers" to damn opponents of his austerity measures and Baroness Warsi talks of "militant secularism" as if Richard Dawkins has been desecrating cemeteries and setting fire to mosques.

Then Andrew Lansley described his critics as "politicised". The health secretary had the nerve to accuse the vast majority of doctors and nurses in Britain of being against his proposed changes to the NHS solely for political reasons - as if what he wants to do is in no way political. This was the first sign that this idea was about to unravel. Portraying militants as "loony" in the 1980s was relatively easy, because that's exactly how they seemed to the majority of voters. To try something similar now is illogical because when you accuse doctors who earn over £100,000 a year of being "politicised" - and therefore left-wing wreckers - it just sounds ridiculous.

The Conservatives have a fine record of portraying themselves as the party of common sense, as if they are not even involved in "politics" at all. They have also, traditionally, been skilled at defaming their rivals in order to scare floating voters. But that was when the enemies were identifiable as something, or someone, different from the middle-income conservatively minded masses. Now they are using those same labels to discredit pillars of the establishment - the very people those conservative-minded masses respect - and even the previously untouchable nurses are in the firing line. Readers of the Daily Mail are used to believing what the paper reports, but eventually even they will find descriptions of the Royal College of Nursing as a training camp for radical extremists a little odd.

There is no need to be as disingenuous as the right about ideology. Of course many opponents of Conservative policy object as a matter of principle. But there are just as many who point out pitfalls and inconsistencies through practical arguments. The government's case is always that the market - even in the NHS - will drive down costs. Critics can point out the rising price of dentistry, the railways, utility bills . the list goes on and on. They also might suggest that under the private companies set to take over NHS services money will fly out of the country - mainly to the US or through off-shore tax-avoidance schemes - money that in a public organisation would only ever have been redistributed internally. They may be arguments tinged with ideology, but they are also evidence-based. Under the Conservatives we seem to be entering a period where arguments are proffered without recourse to facts, a characteristic already found among the majority of the Republican Party in America (who, of course, have been using the word "liberal" in much the same way as "Trotskyite" for years).

Now we are witnessing the humiliating dismemberment of Workfare. Chris Grayling began by accusing its critics of being "job snobs". This hard-line approach has, predictably, turned out to be folly, because even those who don't think the scheme is a terrible idea for the people who have to endure it can see that it is providing free labour at taxpayers' expense for huge companies that already make billions of pounds in profit. The public know Workfare would drive down wages and undermine employees on just above the minimum wage. The Conservatives would be unwise to alienate these voters - but yet they can't help themselves.

During Prime Ministers' Questions a week ago Priti Patel, the MP for Witham, described those against Workfare as "the militant hard left". The prime minister was suitably encouraging in his response. But again the lesson was not learned. Even as the Workfare ship was foundering Cameron and Grayling again used the "T" word to describe the opponents of a scheme that has managed to embarrass the previously unembarrassable Tesco.

As far as I was aware Marxists have been around for over one hundred years and in that time have never once blocked a Conservative bill - and yet suddenly they have been identified as a credible threat to the government's entire legislative programme and fabric of our society. If the people the Conservatives accused of being Trotskyites - about half the population - actually were, then Gove and his friends would have been put up against a wall and shot long ago and the royal family would be awaiting their fate in "the house of special purpose". Happily that is mere fantasy, but so are the dreams of the Conservative PR men who came up with this silly and counterproductive political tic.

If you are going to insult your critics at least come up with a label people can recognise. Most voters under 40 would not have a clue who Trotsky was or what he stood for, even less understand why the Tories are dredging him out of the A Level history syllabus and using him to stigmatise the BMA and head teachers, those well-known trouble makers and advocates if permanent revolution.

This appropriation of "Trotskyite" can only have come from spin doctors whose sheltered view of society reflects the leadership of the party as a whole. There would almost be something quaint about this tactical balls-up were it not for the insight it gives us to the cynical and disingenuous attitude of the Conservatives towards the public sector and of their barely concealed contempt for anyone who tries to resist the atomisation of society. This lazy use of language has not discredited their critics, but has instead exposed themselves as the real ideologues - the precise opposite of what they hoped to achieve.

You can follow George on Twitter as @geochesterton.

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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?