Broke by David Boyle and When the Money Runs Out by Stephen D King: The broken mirror of money

Finance, like fiction, needs a narrative. Money being a belief system - it is always possible to believe our way out of a crisis.

Broke: Who Killed the Middle Classes?
by David Boyle
Fourth Estate, £14.99, 352pp 
 
When the Money Runs Out: the End of Western Affluence 
by Stephen D King
Yale University Press, £20,  304pp

Money is a mirror. When we are happy, it dances, sings and races round the world. When we are frightened, it flees, trembling, seeking a place to hide. When we are sad, it sinks into dark, melancholy pools of mistrust. We are, according to Stephen D King, now sad and money lies inert, indolent.

Those who once gazed most confidently in the mirror of money, the middle classes, dare not look. Their pensions have shrunk; their children cannot afford a home; their hard work, their talents and their qualifications earn them next to nothing compared to the City shysters, while their small businesses pay taxes that are gleefully evaded by foreign multinationals. They are, according to David Boyle, dying.

These two very different books, as their titles suggest, say the same thing – that the financial crash did not just happen in 2007- 2008, that it is an ongoing cataclysm, a melancholy pool in which the west is drowning, that we are broke, that there is no more money. Worse still, there are, as King writes in When the Money Runs Out, no solutions on offer. Since the crash, we have been locked in a sterile political confrontation between two recovery strategies, neither of which can be expected to work. Austerity chokes off growth; increased government spending threatens to plunge us into a Greek-like crisis. The odd thing is that both of these strategies have worked in the past but neither can work now. King’s book explains why.

Boyle is in his mid-fifties. He looks back to the warm, value-laden, functioning middleclass world in which he was brought up from the perspective of the cold, dysfunctional present. Perhaps even then people were standing on a cliff edge but at least they did not know it. Now, they all know it and, indeed, they may already have fallen.

Are these grim diagnoses correct? First, we have to allow for the specialist perspectives of the authors. King is the group chief economist at HSBC and, throughout the book, he understates, occasionally wildly, the role of banking delinquency in creating the appalling collapse of trust that is intrinsic to our current economic stagnation. Boyle is a business writer and policy adviser; he is very middle class and – he admits to this – somewhat too nostalgic to be entirely objective. Neither of these problems is serious but readers should be aware of them.

Both books argue that we have reached the climax of a process that was, until now, largely benign. For Boyle, the middle classes provided enterprise and sound, if occasionally suffocating, values. King writes that the postwar period generated wealth on an unprecedented scale. Unfortunately, failures were implicit in these successes. The middle classes mortgaged their futures and fell for transparent scams, while the new wealth inspired a growth-dependent entitlement culture that was unsustainable in the face of an economic reversal in which growth appears to have stalled.

Boyle’s approach is brisk and somewhat arch. The question in his subtitle – “Who killed the middle classes?” – marks the start of “a detective story” on which we embark with our “deerstalkers and magnifying glasses”. Happily, this heavy conceit is not sustained and safely ignored. What follow are six “clues” – house prices, banks, the financialisation of the economy, pensions, education and the declining role and status of the professions.

He tells these stories, on the whole, persuasively and with some startling asides. Victorian economists, for example, worked out that the average peasant in 1495 needed to work 15 weeks a year to sustain his way of life. By 1564, it was 40 weeks and, now, it is common for both husband and wife to have to work flat out for almost the entire year to keep themselves afloat. Yet we are so much richer, or so we are told.

Perhaps more pointedly, Boyle does some convincing unpicking of policy decisions made over the past few decades. I, for one, had entirely forgotten about the “corset”, a system that existed until the 1980s for restricting bank lending and that, therefore, kept the banks out of the mortgage market. It was dispensed with in the Thatcher years and this, combined with the new money pouring in after the “Big Bang” opened the City to the world, led to a flood of new money for mortgages. House prices soared. If, Boyle observes, houses prices had stayed steady since he was born in 1958, the average price would now be £43,000. It is, in reality, closer to £250,000.

Boyle also reminds me of the Lloyd’s insurance market scandal of the 1980s and 1990s. A few middle-class types had been persuaded to become “names” – investors – in Lloyd’s on the basis that it was a rather grand and very secure home for one’s savings. Unfortunately, being a name meant that you accepted unlimited liability, so when incompetent underwriters steered the business into a series of appalling losses, the middle-class investors were wiped out, homes and all.

The grandees – financial, political and legal – took the side of the City against the investors and thus established the precedent that money was more important than people. As a result of that decision, bankers remain free to gamble with our savings with the same dud equations and the same ruthlessness that led to the crash.

Such histories are interspersed with anecdotes that will probably be familiar to us all: a lawyer struggling to survive in London on £100,000 a year, double-income families forced to spend every penny and leave nothing aside for pensions, professions eviscerated by the algorithmic demands of head office, small businesses destroyed by bureaucracy and robotic banks, desperate struggles to land a place at a decent state school – the private schools having, like the fancy design labels, priced themselves out of the reach of even the higher-income earners.

For the middle classes (and that seems to be about 60 per cent of us), Britain is a worse place than it was and, for their children, it is likely to be even worse. What is to be done?

Boyle’s answers begin from the premise that, to a large extent, the middle classes are the architects of their own misfortunes. For example, they scooped up the buyout money that destroyed the building societies and left us with a dishonest and inept banking system to finance our homes. They are guilty of not paying attention, of not doing what they do best: organising their affairs.

And so, like any good self-helper, Boyle ends with a 12-point programme for the middle classes: accepting the reality that the financial economy is not on their side, being entrepreneurial, buying and being local, avoiding debt, retiring later, starting their own schools, and so on. This, he says, is what they did in the past and it usually worked. But can it this time?

“Probably not” will be your answer if you read King’s When the Money Runs Out. Although, as I say, it is broadly about the same subject as Boyle’s book – the persistence of the economic catastrophe – it could not be more different. Apart from letting the banks off too lightly, King is a tough-minded economist and his approach is analytical and brilliantly educational, though you might wish you hadn’t learned some of the stuff in these pages.

Our problem, to simplify matters, is twofold. The west has created “entitlement” economies, which are predicated on continuing growth. We take this growth for granted, while ignoring the lessons of two once-booming economies – Argentina and Japan – which, suddenly and quite unexpectedly, stopped growing. This stagnation is not the same as a crash. It does not inspire terror but rather, as Adam Smith put it, melancholia.

This leads to the second part of the problem. In stagnation, nothing much happens and neither stimulus nor austerity – the twin poles of our current debate – works. There is no Plan C precisely because we have become so convinced that a swift return to growth is always inevitable.

The awful possibility is that the west as a whole has gone ex-growth and, as a result, we may have to change our entire way of life. It shouldn’t be that difficult. Continuous growth has, after all, only been a phenomenon of the past 250 years. But it is a nightmare and King will not, until the very end, let us wake up. He simply knocks down every economic device and every financial trick that, at one time or another, we have been told would save us from poverty. He is particularly withering about quantitative easing, which he describes as “a morally indifferent Robin Hood . . . chaotically redistributing income and wealth using neither rhyme nor reason”.

There are too many entertaining but depressing examples to list here. Instead, I will focus on the book’s greatest strength, which is its clear sense of the role of belief or, if you prefer, psychology in the working of the economy.

“In reality,” King writes, “the financial system prices beliefs – and beliefs about beliefs – not ultimate truth.” This is a particularly important insight during a period of melancholic stagnation. At such times, every game becomes zero-sum, every action produces winners and losers and trust drains away. We end up fighting over the spoils.

Furthermore, melancholia destroys the possibility of united action to save ourselves. Money being a belief system, it is always possible to believe our way out of the crisis. King points to the way people in some Asian countries simply accepted the reality of their crisis in the 1990s and meekly put up with huge cuts in their standard of living. As a result, their economies bounced back. They had a story to tell themselves, of mutual responsibility and concerted action. “For the west,” King observes drily, “there is, as yet, no narrative.”

Like Boyle, he ends with proposals that might work. We should, for example, treat debtors and creditors as equally at fault – Germany is not the virtuous man of Europe for the simple reason that it lent money to the south in the first place. There should also be a “new social contract between the generations”. The baby boomers have lived well off the future earnings of the young; that cannot happen again.

There are many more ideas but the attempt to find a story to justify the sacrifices necessary for recovery is the foundation of them all. It is this that joins these two books. Boyle is attempting first to evoke and then to restructure the old story of the busy, sane, thrifty and inventive middle classes in the melancholy pools of the 21st century; King is attempting to wean us off the tales – or fantasies – of inevitable and unending growth. Neither is certain of success, because the hard truth may be that the crash marked the beginning of the end of the story of western success. We may never look with satisfaction in the mirror of money again.

Bryan Appleyard’s latest book is “Bedford Park: a Novel” (Weidenfeld & Nicolson, ebook, £3.99)

Safe as houses? Though the west expects a swift return to growth, it is far from inevitable. Image: Daniel Stier Title: "The Frontier House".

This article first appeared in the 03 June 2013 issue of the New Statesman, The Power Christians

Photo: Getty
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“I'm very much out on my ear”: what it's like becoming an ex-MP

Returning to normal life isn't that simple.

The week after June's snap election, Theresa May faced the 1922 Committee of Tory MPs. Her eagerness to appease those angered by the loss of the party's majority worked wonders, with Boris Johnson describing her performance as “stonking”.

It helped that she acknowledged the personal cost of the election for MPs who had lost their seats. The Guardian quotes one MP as saying: “The party is going to help them, some of them are in dire financial situations. She did say sorry, several times. She apologised for colleagues losing their seats, for making the call about the early election.”

Elections are based on numbers: swing; votes; majority; seats – but there is a human toll to losing. Jobless overnight, often without experience directly applicable to another career, many ex-MPs struggle in the weeks following defeat.

While May was referring to her Conservative peers, losing a seat is an experience also familiar to Liberal Democrat Sarah Olney. The former MP for Richmond Park made headlines by overturning Zac Goldsmith’s 23,015 majority in the December 2016 by-election – only to lose the seat by 45 votes six months later.

“I don't get any money at all,” she says. “I got paid up to 8 June and then nothing. I don't qualify for loss of office allowance or statutory redundancy because I wasn't there for long enough. You have to have been there for at least two years.”

Olney, who intends to look for a new job after the summer holidays, describes herself as a “little bit cheated” by the snap election. “I was expecting – especially when we had a Fixed-term Parliaments Act – that parliament was going to last until 2020. So to suddenly find that it's changed means that you don't qualify for anything.”

Even if her situation isn’t “dire” as was alluded to by May and the 1922 Committee, she still finds herself without financial security.

“For me personally, it does mean being without any money at all,” says Olney, who left her job in accountancy to stand as an MP. “I have a mortgage to pay and children to feed and I'm lucky that I've got my husband and he's earning and we've got savings to live off, but I'm very much out on my ear unexpectedly. It's not quite the terms you sign up to, but equally you have to accept that it's not a normal employment either.”

Returning to “normal employment” is not always a painless process. Dr Edmund Marshall, Labour MP for Goole from 1971 until the seat’s abolition in 1983, describes a “widespread suspicion” from potential employers that ex-MPs would be seeking to re-enter parliament at the earliest opportunity.

He also bemoans the nature of the career change itself. “An ex-MP has, in the nature of that role, been a generalist – especially if he or she had long service in parliament – and so is in a weak position when applying for any specialised job, for which there will usually be many other applicants with more up-to-date relevant experience,” says Dr Marshall, who went into lecturing and Church of England policy after leaving parliament.

Another downside for Olney is that the legitimate scrutiny MPs are exposed to will continue even after leaving the Commons. “Every single thing I've done has been under scrutiny and has been reported negatively, even though there's very little to say,” she says. “I'm pretty squeaky clean – I have no skeletons in my closet. Anything people could use, they would. So anything I do from now on would be treated the same. It's one thing to be under that scrutiny when you're running for public office, but it's entirely another when you're just trying to earn a living.”

Most of the “relentless” criticism that she has faced on Twitter has faded, but she remains sceptical of the reaction to a new position. “It might well be that I could take a job and people just won't notice or care,” she says, “but it's been my experience ever since I got selected that anything I did was criticised, so I would expect that to continue I guess.”

When it comes to jobs, Olney remains unsure of her direction, describing herself as being at a “crossroads”. “I'm conscious I might face criticism for anything I might do that uses my political experience,” she explains. “Given that I'm now just a private individual trying to earn a salary, I don't want to have to answer for that.” She laughs: “But I think equally my political experience sits rather strangely on my accountant's CV.”

Olney’s defeat on 8 June left more than just one career affected. She describes the “frustration” of having to lay off her newly appointed staff. “I think one of the things I didn't realise – and I wonder if most people don't realise about being an MP – is you're pretty much almost like a sole trader, and you have to set up everything from scratch,” she says. “You have to hire your own staff and you have to find your own office premises. There's a lot of work involved in doing all of that, and I was only just getting to the end of that set-up phase.

“And then all of a sudden, a general election comes along and having just hired all these staff, the next thing I'm doing is sending them all redundancy letters.

“So that for me was a huge frustration that we never really got started, never really got going, never really got to do all the things that I would have liked to get done.”

Despite saying that there was a lack of support for the transition period after her by-election win, Olney says that, from her experience, the infrastructure for leaving parliament is “pretty good”.

Yet as Olney has experienced, the financial support from the Independent Parliamentary Standards Authority (IPSA) has been cut back following the expenses scandal of 2009. Many MPs, if they have not served long enough to receive a pension, rely on IPSA’s payout to tide them over until re-employment. In 2015, this was capped at £33,530, made up of one month’s pay for every year in parliament. Now, the figure is capped at £29,340, and is calculated from both the number of years served and the former MP’s age.

And then there's actually finding a new job. Keith Best, the Conservative MP for Anglesey (renamed Ynys Môn in 1983) between 1979 to 1987, claims to have made “over 400 applications” after a conviction for fraud forced him to leave parliament.

Dr Marshall recalls a similar, if less extreme, application process. “In 1983, it took me six months to find good, alternative employment,” he says. “I made an application for 56 specific, advertised jobs, and was interviewed for 14 of them. In the end I was offered two good posts, so at least at that stage I was able to make a choice!

“I think the good rate of getting interviews, 25 per cent, was because the selectors were curious to see what an ex-MP looked like. So that curiosity factor is a small advantage that the ex-MP has.”

Meanwhile, Michael Meadowcroft, Liberal MP for Leeds from 1983 to 1987, describes having “survived through journalism”, writing for a number of different outlets before eventually chairing the Electoral Reform Committee.

While the experience of former MPs appears largely consistent across party lines, two former Labour MPs argue that Conservative politicians face advantages when it comes to gaining re-employment. Tony McWalter held Hemel Hempstead for Labour from the seat’s creation in 1997 until 2005. He cites “two advantages” for former Tory MPs.

“On the one hand,” he says, “their party thinks that to be an MP is not a full-time job, so frequently they keep paid positions while they are MPs without incurring the wrath of their constituency members. This makes the transition to being a former MP much smoother.

“Secondly, many Conservative MPs have close friendships with those who run companies, and that in turn means there are likely to be people in positions of considerable [influence] to whom they can turn when the electoral axe falls.”

Dr Marshall agrees it is easier for Conservatives, but attributes this to political bias rather than connections. “All ex-MPs, when job-hunting, are likely to encounter some party political prejudice among the selectorate,” he says, “but I think this poses particular difficulty for Labour ex-MPs, because the Tories probably have a majority among the selectorate. For instance, it appears easier for ex-Tory MPs to land positions on boards of directors.”

Keith Best and his 400 unsuccessful applications may disagree.

Yet losing a seat is not all doom and gloom. Sir Hugh Bayley, the former Labour MP for York Central, writes of the personal and professional opportunities afforded by stepping down in 2015 after 23 years’ service. “My wife, Fenella Jeffers, had had enough of a spouse who was rarely at home, and focused mainly on politics even when there,” he explains. 

“Fenella was born abroad, in Nevis in the Caribbean, and said she was going home, to live there much of the time. We decided it was her turn to set the ground rules for our lives.

“I now spend a few months a year in Nevis. I draw a parliamentary pension but work (pro bono) as a member of the UK/Europe Board of the International Rescue Committee (the New York-based humanitarian NGO led by David Miliband), and (paid, part-time) as a lay member of the Nursing and Midwifery Council.

“Fenella spends a few months a year in the UK so we spend roughly half our time together, which is far more than we did when I was an MP, and it is allowing us to rebuild the relationship which nearly collapsed because of the pressure of all those years when I was in Parliament.”

Olney echoes those sentiments. Speaking over the phone before going to play football with her son, she says: “The up-side of only having been there six months is that I had a normal life before, and it's been an opportunity to reconnect with that normal life, so spending more time with my children.

“It's been an opportunity to catch up with people and rediscover some of the other things I used to do before I became an MP.”

And yet, the call to the Commons is persistent. When asked if it was in her plans to re-stand for election, Olney was emphatic. “Yes. Yes, absolutely it is. It definitely is.” Referring to Goldsmith, she says: “He had a majority of 23,000 two years ago and now he's got a majority of 45. That's just the momentum that we've got going on here locally and I don't want to spoil that, I want to get over the line next time.

“For me, it's not so much personal. I am now out of work, but I will find another job reasonably easily and I will get back the life I had before. I just don't feel Zac Goldsmith is the best person to represent this constituency and I'm just really annoyed he's our MP again.”

Olney’s point that being an MP is no “normal employment” was also part of the appeal for her predecessors. “It is an absolutely marvellous job,” writes McWalter over email, emphasis his own. “You might be able to help, not dozens of people who are victims of injustice or callous indifference, but thousands of them.

“You will get opportunities to expand your knowledge to be able to do the job, and I found my placements with police service and with the Royal Navy during my time in parliament of extraordinary value.

“You will find the job has dazzling variety, so you need to become knowledgeable about a huge range of matters – from war to warts, and you have to employ the knowledge so gained to improve the lot sometimes of people throughout the country.

“Just to serve on a select committee, [as] I did [on] Northern Ireland at a crucial time, and then science and technology, is to be faced with challenges every bit as demanding as those faced by those who stay in the academic world.

“Most people who have been Members of Parliament have found the experience wonderful. It is sad, however, that the skills you acquire are redundant the moment you lose your seat. Those who seek to get into Parliament are often rational and altruistic, for they are applying for one of the best jobs you could do. But it would be a service to our democracy if their offer to serve were to be put into proper context."

McWalter does realise that not every aspect of the job, and the consequences of losing it, are positive. “Some have to pay for their time of service by having a quality of life a lot worse than they had before they were successful in an election,” he says. “That is the price to be paid by many, and the subsequent strains on mental health, on marriage, and on financial security, are sometimes such that those who are the family and friends of former MPs wish they had never been elected.”

Best concluded on a similar note: “Being an MP these days is so risky that I fear that it will deter many, if not in their own interests at least in those of their families.”

Nevertheless, for many MPs, working in the Commons is not a career that can be simply left behind. For them, the price of entry – and exit – is worth it.