Woolwich deserves better than the attention of murderers and EDL racists

An eyewitness account from last night's disturbances in south east London.

It’s just before 9pm on Wednesday evening, and the handful of customers in Woolwich Wetherspoons are distracted by the giant TV screen playing looped footage of a crime scene about half a mile up the road. It’s the main topic of conversation, and even the barman is arguing with the waitress, like people everywhere have been arguing: who did it, why, what it means. A few minutes later, a dozen men – youngish, in windbreaker jackets – enter the pub, looking jumpy. Several are talking into their mobiles. As his companions approach the bar, one steps back outside and unfurls a St George’s flag with “EDL – Bexley Divison” written on it.

As details of the brutal murder of an off-duty soldier near to the barracks in Woolwich filtered through yesterday afternoon, the leaders of the EDL set about trying to exploit it. Their street movement has all but collapsed, under the weight of public revulsion at its bigotry and violence, and the determined efforts of anti-fascist campaigners. Their only hope now is to provoke some kind of serious disorder: earlier this month, on the day of the Oxford grooming trial verdict, EDL leader Stephen Lennon and his sidekick Kevin Carroll spread unfounded rumours on Twitter of a child rape by “Muslims” in Luton.

Yesterday, the Woolwich killing – a personal tragedy for the victim’s friends and family, a shock for the local community, but with a political context guaranteed to make it front-page news – appeared to give them another opportunity. Jihadist terror and the rise of anti-Islam sentiment is widely discussed – but since 2008, with far less comment, the military has become an increasingly sensitive element of British culture. Uniformed soldiers play a ceremonial role in major sporting events; politicians use the issue of soldiers returned from Iraq or Afghanistan for rhetorical effect – as the communities secretary Eric Pickles did at last year’s Tory conference, when he accused “foreign immigrants” of being unfairly given housing ahead of “those who fought for Queen and country”. Is this a natural effect of more than a decade of war, or does it speak to a deeper unease? It was, after all, an incident at a homecoming parade by the Royal Anglian Regiment in 2009 – an insulting protest by a small group of self-styled Islamists – that sparked the creation of the English Defence League in the first place.

At the pub, more men arrive. The first group head off, while one of the new arrivals says “let’s get a round of sambucas in”. Leaving, I cross the central square – newly refurbished and overlooked by a giant, curvy new block of aspirational apartments – to find out where the first group is headed. If the “Bexley Division” flag is anything to go by, these EDL activists have come over from the neighbouring borough: whiter in ethnic make-up than Woolwich, and where in a little-reported subplot to the 2011 riots, a gang of EDL activists gathered to “defend” their neighbourhood from rioters.

There is an echo of that incident as, suddenly, a group of men come charging towards the lower end of the square, throwing bottles and chanting “E-E-EDL”. A train station borders that side of the square, and a mainly black crowd of onlookers scatter. I catch a look somewhere between disbelief and panic on the face of one man as he passes me. The EDL – along with their more respectable cousins in the political mainstream – claim that their islamophobia has nothing to do with race. Yet it’s striking how quickly one can slip into the other, as indicated by the careless description of the murder suspects as being “of Muslim appearance” that found its way into the main BBC News reports yesterday. Video footage later revealed them to be two fairly average-looking men of African or Caribbean origin, dressed in everyday clothes.

But the chaos is fleeting. The police, who had lined up on the other side of the square, catch up and block the road; the EDL crowd isn’t as big as it first seemed, numbering around 60. Confronted, its members run off down a street alongside the railway tracks, towards the Queen's Arms, a pub with a huge St George’s Cross flying from the flag pole in its front yard. As the EDL crowd regroups, their numbers swelled to a hundred or so, some have slipped into balaclavas. I see one of these men stuff what looks like a weapon into the waistband of his shorts. Their plan is to head towards the local mosque, which lies on the other side of the estate behind the pub, but their way is blocked by a line of police. Instead, they head back to the square, where they’ll play cat-and-mouse with riot officers until they get bored, or until the TV news crews pack up and go home.

My lasting image of the night is not of the EDL, but of the crowd that gathered to watch them, outside the the Queen’s Arms. These were local people – men and women on their way home from work, teenagers out for the evening – in a neighbourhood that only gets serious media attention when it plays host to a murder, or a riot. The mood was uneasy, but convivial all the same. When a dog starts sniffing a little too enthusiastically at someone’s leg, its owner jokes “don’t worry it’s not a police dog!” There’s a ripple of laughter when a newspaper reporter gets out his iPad to take a photo of the scene. A car drives past and its occupant swears in the direction of the police. The car is flying a stick-on Union Jack from its roof. Behind me, a man gestures towards the EDL, and says to his girlfriend, “I get where the anger’s coming from, but this is not the way.”

Daniel Trilling is assistant editor of the New Statesman and the author of "Bloody Nasty People: the Rise of Britain's Far Right" (Verso Books). Follow him on Twitter @trillingual

Members of the EDL in balaclavas as they gather outside a pub in Woolwich in London. Photograph: Getty Images

Daniel Trilling is the Editor of New Humanist magazine. He was formerly an Assistant Editor at the New Statesman.

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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?