Working class voters and the 'progressive' left: a widening chasm

The triumph of identity politics means too many progressives appear willing to dismiss the white working class as socially backwards and not worth listening to.

During a speech on welfare a few months ago, Ed Miliband repeatedly referred to Labour as the "party of work". "The clue is in the name", Miliband told the cameras, hoping, presumably, that voters would see Labour as the champions of working people, rather than idle ones.

The idea that Labour remains the party of the proletariat is partly the basis of Miliband’s so-called '35 per cent' strategy - the idea that a coalition of Labour’s core voters and disaffected Liberal Democrats can sweep Miliband to power in 2015 with just over a third of the vote (with no need to servilely seek the support of 'middle England'). Swathes of blue-collar working class voters, mainly in the north of England, will turn out to vote Labour in any election come what may, so the logic goes. It is the Labour Party, after all, and the "clue is in the name" - it is the party of labour, the working classes.

The problem is that increasingly it isn’t. Or at least it isn’t representative of working class opinion in the sense it once was. On many economic questions the left may represent the interests of the working class more effectively than the right, but, socially, the values of the traditional working class are increasingly at odds with those of the liberal or 'progressive' left.

The main divisions one finds are over immigration and welfare. The middle classes tend to associate immigration to the UK with things like fancy restaurants, new music and a Polish cleaning lady who makes a better (not to mention cheaper) fist of cleaning the office than her British counterpart. For the working classes, however, migration is all too often interpreted as meaning stiffer competition for wages and the loss of the sense of community in the places where one grew up. As the authors of the 2012 British Social Attitudes survey put it: "[In recent years] economically comfortable and culturally more cosmopolitan groups show little change in their assessments of economic impacts [of immigration], but economically and socially insecure groups have become dramatically more hostile."

Differences in perception are also stark when it comes to welfare. The metropolitan left readily accuse Miliband of betrayal if he so much as hints that he won’t reverse coalition policies on social security once in office, yet Labour’s core voters are the most enthusiastic proponents of welfare reform - almost half believe that if benefits are cut it will help people stand on their own two feet. Attacking the coalition for embarking on welfare reform (as opposed to criticising the way reform has been carried out) is ironically more likely to repel working class voters than persuade them to vote Labour.

A similar chasm between working class voters and the middle class left is already well established in the US, with the result that the Democrats are today viewed predominantly as the party of wealthy white liberals and ethnic minorities. What we might call the traditional working class - whites without college degrees - backed John McCain by 58 per cent to 40 per cent in the 2008 election and George W Bush in 2004 and 2000 by a similar margin. In 2012, middle-class white voters who said they were struggling to maintain their financial position chose Mitt Romney by 58 per cent to Barack Obama’s 32 per cent.

Back in Britain, the chasm in attitudes between the middle class left and the more socially conservative working class has always existed but has been exacerbated in recent times by the popularisation of identity politics – white working class men, however much they are struggling financially, absurdly register as 'privileged' on the identity politics totem due to their whiteness and what is between their legs. Meanwhile, positive discrimination and quotas provide a much needed (and justifiable) leg-up for most disadvantaged groups in society, yet by excluding any recognition of class from the process, the same policies leave the white working class falling even further behind – despite the fact that class remains a much greater determinate of a person’s life chances than skin colour or gender.

This is not to say the left should crudely pander to ultra-regressive views on migration and welfare. But nor should it completely ignore the concerns of its so-called core vote. Unfortunately, thanks to identity politics, many progressives appear willing to dismiss the white working class as socially backwards and not worth listening to (notice how those attending English Defence League rallies get almost as much abuse heaped on them for their football shirts and beer bellies as for their racism).

Unless the left is comfortable becoming a movement of upper middle class liberals and ethnic minorities (no shame in that of course), it ought to start listening a bit more to the concerns of its electoral base while it still has one. For, to paraphrase Bertolt Brecht, it isn’t possible to dismiss the working class and elect another.

Ed Miliband delivers his speech on reforming the Labour-union link at the St Bride Foundation on 9 July 2013. Photograph: Getty Images.

James Bloodworth is editor of Left Foot Forward

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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?