A concept illustration of the new Crystal Palace, produced by the ZhongRong Group.
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Boris Johnson’s plan to sell public land for a new Crystal Palace will be a terrible boondoggle

The idea of building a new Crystal Palace in south London appeals to the Victorian Toryism in Boris Johnson, but it would be another pointless, aesthetically-bankrupt legacy the capital will have to deal with.

Whether or not Boris Johnson runs for another term as London Mayor or whether he heads off to the shires to prepare his assault on Downing Street, he will have left a very peculiar built legacy in London. Where Ken Livingstone saw letting developers get their way as something of a Faustian pact, attempting to extract “planning gain” – public realm works, affordable housing, etc – in exchange for permission to build, Boris has no qualms about giving rich builders carte blanche, and is fond of a good old-fashioned vanity project.

First came the ArcelorMittal Orbit, the utterly pointless and aesthetically inept viewing platform for the Olympics, and then it was the Emirates Air Line, the similarly pointless cable-car river crossing. There is the New Bus For London, a bigger, heavier, more pointless bus than what Londoners had before, not to mention the ill-fated Barclay’s sponsorship of Cycle Hire. Johnson’s usual strategy is to find a mega-wealthy sponsor to contribute some – but not all – of the funds required to build his urban trinkets, in exchange for branding opportunities and no doubt various other negotiated preferences. And in Sydenham, south London, it looks as though Boris might be trying to build his grandest, most pointless project yet.

Johnson’s new billionaire friend this time is Ni Zhaoxing, head of the ZongRhong Group, a Chinese state-backed real estate company, and the prize he’s offering is a chance to rebuild the Crystal Palace, that magnificent symbol of Britain’s glorious industrial history. But that’s not quite what’s happening. What is actually going on at the moment is that six of the UK’s best architects are working on proposals to build a new building inside Crystal Palace Park on the site where the original building stood. This will be “in the spirit” of the Crystal Palace, and at the moment will apparently house a “cultural asset/visitor facility”, art galleries, observation deck and a six-star hotel.

It’s not hard to see the problems in this. Crystal Palace Park is “Metropolitan Open Land”, and it’s not clear that Boris had the legal right to offer it up to someone to build something there, let alone something with a footprint of nearly one million square feet – roughly equivalent to the O2 in Greenwich. It’s also not clear that there’s any demand for a building of that scale out in a suburb of south London, and even if there were, it’s not clear that the transport infrastructure could cope with the amount of people who would visit a building of that size. And beyond these issues, there’s basically no way that some kind of ill-defined “cultural programme” and a hotel could make a building of that size commercially viable. So it’s perfectly right that local residents and politicians are highly suspicious of the process, as it appears that Johnson (and Bromley Council) are trying to hand over public land to a private developer who simply haven’t made up their mind what they want yet, and will probably in the end build something that will make them a profit, such as, just possibly, a shopping mall.

The Crystal Palace is a fantastic brand for a conservative, a potent image of the Victorian glory days of 1851 when Britain was the most powerful country in the world and host of the very first world event, the Great Exhibition in Hyde Park, to demonstrate this fact. The incredible pre-fabricated palace, designed by the gardener Joseph Paxton, has also cast a long shadow over architectural history as an archetype of functional design, and there is no doubt that this new project would be a dream commission for many on the architects long-list.

But there’s another history: the Crystal Palace was only an exhibition hall for six months, and in 1854 it was rebuilt as a permanent facility. In its new guise it held museums and galleries, winter gardens, art and engineering schools, and a number of concert halls (of which the largest could accommodate an audience of 23,000). Intended to provide an educational, uplifting space where the classes could mix, it struck a public chord, and for many writers it even became symbolic both of a social utopia where humans lived in harmony with nature, but also a rationalist dystopia where all mystery in the world had vanished forever. At various points it was a popular venue, but at that scale it verged on being financially useless and went bankrupt a number of times before being taken over by the government in 1911. One wing burned down in 1866, and by the point it was completely destroyed on the 30 November 1936 – described by Churchill as “the end of an age” – it was on the verge of ruination.

It’s worth noting that the period in which Britain was showing itself off at the Great Exhibition was the same period it was violently opening up China to foreign trade. So if Johnson wants to rebuild this shimmering symbol of Britishness, he may find that it has somewhat unwelcome historical resonances – decline, failure – to the ones he’s aiming for, and one wonders if he’s considered the potential ironies in this latest mighty work of his.

 

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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?