While the Tories head right, the Republicans are beginning to modernise

The GOP is embracing immigration reform and is under grassroots pressure to reverse its opposition to gay marriage.

When staring down the barrel of a gun, most political parties seek drastic change to reverse their electoral fortunes. Such is the case with both the Republicans in the United States and the Conservative Party here.

The former has sought to alter its image following a presidential election it should have won. The Tories are still reeling from not winning an outright majority in 2010; still disgusted they share power with the Lib Dems; still concerned that a resurgent Labour Party and UKIP will render them useless in 2015.

These right-leaning parties have taken different routes in order to become winners. One has become more reactionary, peddling its old messages in a drastic attempt to excite the base; the other is accepting that the political parameters are shifting and that it needs to modernise its message.

Yes, that’s right; the Republicans are becoming more liberal than the Conservatives. The Tea Party had its day in the US in 2010; now it’s having its day in the UK in 2013. Two major issues – gay marriage and immigration – clearly show this shift in conservatism on both sides of the Atlantic.

Gay marriage, an issue many in Britain thought had been resolved, once again came to the forefront due to rebellious Tory MPs. One doesn’t need to go far to witness the dread in Conservative eyes at the issue and what it could mean. Gerald Howarth yesterday declared, "There are plenty in the aggressive homosexual community who see this as but a stepping stone to something even further." One can dismiss this as the ramblings of a backbencher, but members of the cabinet have their own gripes: Welsh Secretary David Jones said that gay couples "clearly" could not provide a "warm and safe environment" in which to raise children.

The GOP may not seem as if it is leading the charge in terms of marriage equality, with the Republican National Committee voting to reaffirm the party’s commitment to upholding the definition of marriage as between a man and a woman. Yet there are growing calls for it to embrace gay marriage to attract younger voters. While in Britain Tory activists complain about Cameron’s stance and protest against the reform, grassroots Republicans in the United States are doing the exact opposite: they’re mobilising to embrace gay marriage.

When Rhode Island State Senate passed a same-sex marriage bill in April, all five Republicans in the chamber voted in favour. They had been extensively lobbied by the American Unity Fund, a Republican advocacy group that pushes its elected officials to embrace the gay equality agenda. Contrast what fund organiser Paul E. Singer told The New York Times with the words of David Jones above: "The concept of gay unions fits very well within our framework of individual liberty and our belief that strong families make for a stronger society."

Embracing change is something Conservative Party members appear unwilling to do. A letter signed by 30 present and former local party chairmen ignored the fact that more than 60 per cent of the British public have consistently supported same-sex marriage. It read: "The Prime Minister's bizarre drive to ram this legislation through Parliament, without any democratic mandate and without the support of party members has been a disaster and has driven thousands of voters to Ukip." Do they believe that if put to the vote, the UK would side with their stance?

This focus on the electoral advantages of supporting gay marriage brings us to the immigration debate, something that, alongside withdrawal from the EU, has been a staple of the UKIP manifesto.

One difference between Tory activist attitudes towards immigration and gay marriage is that a tougher stance on the former is supported by large sections of the public, whereas their stance on the latter is a vote loser. While in the US, the GOP is embracing immigration reform to allow illegal migrants to become citizens, in Britain, our public discourse has taken a negative turn. Whereas Tory activists are the Tea Partiers when it comes to gay marriage, the British public is increasingly becoming the Tea Party when it comes to immigration.

A NatCen Social Research back in September showed that British attitudes towards immigration had  hardened over the years, with 51% wanting to see immigration levels "reduced a lot", a rise of 12% since 1995. Britons focus particularly on illegal immigrants. Recent Pew Research in the US shows almost 75% of Americans believe that there should be ways for illegal immigrants to stay within the country legally. The United States, a country born through immigration and proud of it, clearly has a different perspective on the matter – but now the GOP, a party whose immigration line was previously similar to that of the Conservatives, is embracing immigrants as potential voters.

In his New Yorker article "The Party Next Time", Ryan Lizza detailed the growing non-white American electorate and how traditionally red states, like Texas, were, in demographic terms, becoming more like blue states: growing numbers of Hispanic, African-American and minority voters who tend to lean Democratic. While some conservatives on Fox News bemoaned the decline of white America, others realised the need to approach these growing minority bases.

This is particularly important in Texas, a huge state whose large number of electoral colleges is needed by every Republican presidential candidate. Steve Munisteri, the chairman of the party in Texas, told Lizza: "You cannot have a situation with the Hispanic community that we’ve had for forty years with the African-American community, where it’s a bloc of votes that you almost write off." As Republicans begin to transform their approach towards Hispanics and other minorities, Conservatives in Britain are beginning once more to bemoan immigrants, pander to UKIP over the EU, and vocally oppose gay marriage. Worrying,  large sections of the public also agree with some of these stances.

The British press always loves to focus on the ridiculousness of America: its gun culture, its capital punishment, its racism. Yet as we have laughed and ridiculed those across the pond, we have become blind to the fact that as the GOP has started to move away from its own loony past, the Tories are becoming the new heirs of Sarah Palin and her dropouts.

Louisiana governor Bobby Jindal speaks during the second day of the 40th annual Conservative Political Action Conference (CPAC) March 15, 2013 in National Harbor, Maryland. Photograph: Getty Images.

Kiran Moodley is a freelance journalist at CNBC who has written for GQ, the Atlantic, PBS NewsHour and The Daily Beast.

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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?