Climate change: the scientific debate is over. Political and policy action must start now

The IPCC report has given the government a wake-up call.

Today, one part of the climate change debate comes to an end. The scientific debate is over. The IPCC, a huge distinguished panel of international climate scientists, has concluded that to limit climate change, the world must make a continued and substantial reductions of greenhouse gas emissions. No other scientific conclusion has been subjected to such prolonged,detailed, global scrutiny. Those responsible for our media coverage – particularly the BBC – should take note.

Time should be called on a long, rancorous, and frequently very odd debate, in which a tiny number of individuals and small groups – frequently with clear vested interests - have been given equal weight to 97 per cent of climate scientists. The Flat Earth Society still exists, but that doesn’t mean we have to take them seriously.

Of course it’s not just climate scientists – and green campaigners - who’ve recognised the pressing urgency of action on climate change. From the head of the IMF, Christine Lagarde, who said climate change kept her awake at night, to 83 per cent of Global 500 companies which have recognised climate change as a serious risk to their operations, to the heavily at-risk inhabitants of fragile small island nations around the globe, there’s wide understanding. As Ban Ki-Moon, UN Secretary-General has said: “"The heat is on. Now we must act."

Those opposed to “green” action in Britain often say that we can’t afford it in today’s economic climate. On the contrary, we can’t afford not to act for the sake of both economy and environment. And that’s not just because of the risk of the floods, the droughts, the heatwaves, are already having huge human and financial costs, but because of the weaknesses and the failures of the very foundations of our economy and everyday life, structures built on massive consumption of once-cheap fossil fuels that we can no longer afford.

We have a huge problem with fuel poverty in Britain, the result in part of rising energy prices – almost all due to the rising cost of gas and distribution costs in our privatised system, but also of our leaky, poor insulated homes. With not a penny of government funds currently going into home insulation, we’re not only missing out on tackling that problem – but also creating tens of thousands of good, long-term jobs, as well as cutting carbon emissions.

We have a huge problem with unemployment, under-employment and low pay in Britain. Investing in and developing renewable energy generation technologies – based around our rich wind and tidal power sources – offers the chance to generate.

The Centre for Alternative Technology has calculated that together renewable technologies and energy conservation can deliver up to 1.5 million good new jobs.

We have a huge problem with food poverty in Britain – with half a million people dependent, today, on food banks to get enough to eat. We need to bring food production back to Britain, restoring the ring of market gardens around our towns and cities, ensuring food security in our increasingly uncertain world, removing currency risk. We must end the dreadfully wasteful, destructive practice of air freighting fruit and vegetables, and cutting down our practice of shipping them around the world.

We have a growing problem of “transport poverty” in Britain – fast rising rail and bus fares that are trapping our often forced commuters into further poverty. We need to develop a transport plan for England' built at its base around walking and cycling (worth noting that 1.3 million more new bicycles were bought last year in Britain than cars registered), with affordable, reliable, timely public transport available for longer journeys. Again, more good jobs, as well as cleaner air and better public health.

There are also looming threats that we need to avert. Green MP Caroline Lucas has highlighted the economic threat of the “carbon bubble” – the unburnable fossil fuels whose valuation underlies the stock prices of some of our largest companies. We need to think long and hard about how to manage that risk, how we can keep more than half of our known fossil fuel reserves in the ground, not subsidise the potential new and risky operation of fracking for shale gas, as our government is currently doing.

It’s not surprising that we’ve seen uncertainty about climate change growing in Britain, with a recent poll showing 19 per cent of people were not sure about the human cause of it. (Although of course 72 per cent were sure). With the government failing to take action, with a Lib Dem energy secretary saying he “loves” shale gas, some people understandably thought that perhaps climate change was something they didn’t have to worry about. But they, and the government, have today been given a wake-up call.

Britain has been a leader, and we can, and must, be again. In passing the 2008 Climate Change Act, Britain stood out in declaring its collective intention to reduce greenhouse gas emissions. Now we need to match that with action.

Natalie Bennett is the Green Party leader

Looking out over Death Valley, one of the driest places in the world. Photo: Getty

Natalie Bennett is the leader of the Green Party of England and Wales and a former editor of Guardian Weekly.

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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?