I loved Obama's speech unreservedly. So there

Obama gave a well-written, brilliantly delivered, and - for the US - subversive inauguration speech. Why was the reaction of many UK progressive commentators so hysterically cynical?

I sometimes get the sense there is a widely-held belief that dissent is inherently more intelligent than approval. Twitter is a good demonstration of this. Say anything – make the most uncontroversial, most incontrovertible statement you can think of – and seconds later somebody will pop up with sophistry about why it is as terribly wrong as wrongetty wrongness can be. It is the currency of the world.

This is the only way I can explain the hysterically cynical reaction of UK progressive commentators to Obama’s inauguration speech, on Monday. While I joined hundreds of millions around the world watching one of the most important speeches of one of the most powerful people, my timeline was littered with “boos”.

The general tone was yeah, yeah, yeah words are cheap (not their words, mind you, only Obama’s words), this is only rhetoric – his actions are right-wing, tweeting articles about his terrible record in the Middle East, environmental issues, the use of drones. All valid criticisms. All setting the reality of his last presidency against the rhetoric of his speech. All raised at the wrong time. All ignoring what was happening right at that moment.

We would all be falling over ourselves to congratulate a Hollywood actor or Church of England archbishop for delivering the very same speech. Even though neither has real power to do anything about it. Even though their speech is likely to be heard by a tiny proportion of the people who heard Obama’s words yesterday. So, which is it? Do words make a difference or not?

Because the reality of that moment was that his brief was a rhetorical one. What is required of a President in his inauguration speech is – have you guessed it yet? – a speech. And it was a bloody well written, brilliantly delivered, historic speech. That is what passed these commentators by, while their own jeering was ringing in their ears. I applaud you for taking him to task over his policy failures. I do the same. But is it too much to ask we start on Tuesday and treat this seminal occasion with the joy it deserves?

If I had told you ten years ago that a black man would be standing on Capitol Hill delivering an address which spoke kindly and fairly about women, ethnic minorities, gay people, action on climate change and free healthcare, you would have laughed at me with the same cynical sneer that curls on your lip as you read this.

Rooted at the core of this discontent are fundamental misunderstandings about US politics. A failure to understand the task faced by a President with no majority in the legislature. You define Obama as right-wing, but fail to see that this is only according to arbitrary fictional standards. Within the reality of what is politically possible in the US, he is practically a subversive. If all he manages to leave behind is healthcare for hundreds of thousands who had no access to it before, marriage equality and a chink in the impenetrable armour which resists gun regulation, he will have been on balance a very good President indeed.

What would you rather? That he came out and made a speech about the dangers of immigration, shirkers versus strivers and drawn curtains? Only last week you were explaining how damaging this sort of language can be, when used by our PM. And yet, when one of the most important people in the world uses his most visible rhetorical platform to speak in the language of hope and fairness, you slate him nevertheless, because you predict he’ll do nothing.

But he already did something. His words set absolutely the right tone to his second term. His words will make it a tiny fraction more difficult to bully the gay or brown kid in schools everywhere. His words will make it a tiny fraction more difficult for our PM to continue using the language of fear. His words warmed the heart of this olive-skinned, immigrant poof.

Two weeks ago many of the same people were up in arms about three words used by a columnist in the New Statesman. We recognise the capacity of words to oppress and hurt. Why not their capacity to lift and heal? Which is it? Do words make a difference or not?

Actions speak louder than words, or so it goes. That doesn’t mean words don’t matter. Well-chosen, passionately spoken words have the power to change people’s hearts and minds. I may not always be on board with Obama the President. But Obama the Orator is a different matter. It saddens me that so many cannot tell the difference.

President Obama on the platform in front of the Capitol Building for his second inauguration. Photograph: Getty Images

Greek-born, Alex Andreou has a background in law and economics. He runs the Sturdy Beggars Theatre Company and blogs here You can find him on twitter @sturdyalex

Getty
Show Hide image

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?