Why David Cameron might be even more conservative than anyone thought

When making a speech, it pays to be more like the referee than the flashy star player.

The importance of party conference speeches – such as the one David Cameron delivered from Manchester on Wednesday 2 October – is vastly overrated. They are built up for weeks but forgotten in minutes. Perhaps the wisest speeches should be designed that way. There are dangers in a speech that is rapturously received. It can inflate expectations against which the leader is then harshly judged. A conference speech is like a low, electrified hurdle: as long as you don’t crash headlong into the voltage, it doesn’t much matter how high you leap. It is sometimes better to jump the obstacle with restrained economy and a lack of fuss, implying that there are more important things to be getting on with. A muted success, paradoxically, can leave a leader better positioned than a barnstorming triumph.

I learned this lesson the hard way. When I was captain of Middlesex, the club hierarchy made use of how I didn’t mind giving speeches to large audiences. They wheeled me out at forums and AGMs, encouraging me to “gee up the members” and “give everyone a lift”.

One season, as often happens in sport, the (successful) AGM was followed by a moderate run of early-season results. I was surprised to find my job instantly under threat. A senior club official explained why: “You were so confident and optimistic at the AGM that everyone left thinking we were going to have a spectacular season. Then it didn’t happen straight away.” A good speech had weakened my long-term position.

The point is that the AGM was not the real cricket season, just as the party conference is not real government. The AGM was just something that I had to negotiate and survive before moving on to my real job, which was to win cricket matches. If I’d been shrewder, I would have known that unflashy competence is sometimes the best you can hope for. It demands an unusual kind of bravery for a politician to behave like that. They are constantly pressured to articulate a grand vision. “The blandness of our pygmy politicians,” a recent feature in the Sunday Times complained, “reflects . . . an age devoid of big ideas.” An accompanying illustration portrayed David Cameron, Ed Miliband and Nick Clegg cowering in the shadow of Churchill, Thatcher and Blair, whose faces were carved into a British version of Mount Rushmore.

The cult of heroic personality fits neatly with the demands of the modern news cycle. The media nurture the idea of politicians as football managers: executive overlords with a constant and easily defined purpose, governed by stopwatch timekeeping and answerable to an expectant crowd. Will he produce a good speech/performance at the conference/cup final? How many more defeats can he survive? It is conveniently dramatic to imagine politics as a never-ending football season, punctuated by a series of contests that can be clearly categorised in terms of victory or defeat.

Yet the image of dazzling individual performances on big-match occasions doesn’t accurately describe politics – let alone government. Of all Cameron’s speeches, the idea that has stayed with me most clearly is the one that I like the least: last year’s conference refrain about “the global race”. Many pundits loved it for its catchy simplicity, its sense of a nation metaphorically called to arms. I thought it sounded like a soundbite cooked up during a conversation between a focus group pollster and a postgraduate studying for a Master’s in international relations.

In his essay “On Being Conservative”, the philosopher Michael Oakeshott explicitly warned conservative politicians against presenting an overarching, simplistic solution to every problem. The adolescent attraction of heroic leadership, Oakeshott argued, was intrinsically unconservative.

Oakeshott described what he called “the conservative disposition” as the ability to grasp “the inventiveness, the changefulness, the absence of any large design”. Oakeshott’s ideal conservative politician was suspicious of the “jump to glory style of politics in which governing is understood as a perpetual takeover bid for the purchase of the resources of human energy in order to concentrate them in a single direction”.

Far from hoping that the conservative politician would aspire to be a flashy star player, Oakeshott wanted him to have more in common with the referee – “strong, alert, resolute, economical and neither capricious nor overactive”, and careful to avoid “always blowing his whistle”.

Instead of setting the agenda, he holds the right balance; in place of vision, he seeks informal compromise; far from using logical arguments to pursue utopia, he has a nonrational grasp of his particular era and its demands. These are the features of an Oakeshottian conservative. “What others plausibly identify as timidity, he recognises in himself as rational prudence . . . He is disposed to indicate assent or dissent, not in absolute, but in graduated terms.”

But this version of conservative politics clearly does not easily lend itself to a rousing speech at a party conference. After all, when did a referee ever make a great story, unless, that is, he’d made a huge blunder?

We are conditioned to think that political leaders must approach conference as an opportunity to articulate a catchy idea. I’m not so sure. Ed Miliband certainly captured the news cycle with his promise to freeze energy bills but it remains to be seen whether he will end up grateful that the idea found traction. There is an art in avoiding hostages to fortune and much to be said for getting through the conference season without resorting to picking a “big idea” out of thin air.

David Cameron is often criticised from the right flank of his party for not being conservative enough. Ironically, he may be more conservative than even his detractors would think.

David Cameron addresses delegates at the annual Conservative Party Conference. Image: Getty

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 07 October 2013 issue of the New Statesman, The last days of Nelson Mandela

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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?