Royally red: Straw, Blair, Kinnock, Prescott and Dromey Jr. Montage by Dan Murrell
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What Labour’s Red Princes tell us about Britain

The UK has the lowest level of social mobility in the developed world, and the nepotism at the heart of the Labour Party reflects this.

If Labour wants to convince disaffected voters that its politicians aren’t drawn from a narrow, self-serving Westminster elite, it has a few problems. The latest research found that 54 per cent of the party’s candidates selected in marginal or inherited seats (those with retiring MPs from the same party) for 2015 have already worked in politics or for think tanks. In comparison, 17 per cent of Conservative candidates are political insiders.

There’s another reason why Labour politicians might seem hard to tell apart. Let’s start with Aberavon, a constituency in south Wales that has voted Labour since the 1920s. There is little to tie Labour’s candidate to this safe seat. When not knocking on doors in Wales, he splits his time between Mayfair, where he works as a business adviser, and Denmark, where his wife, Helle Thorning-Schmidt, is prime minister. There’s a lot tying Stephen Kinnock to Labour, however. His father is the former party leader Neil Kinnock and his mother is Glenys Kinnock, the erstwhile Labour MEP.

Or take Labour’s hopeful in Rossendale and Darwen, Will Straw. His father, Jack, a former home secretary, has held the neighbouring constituency of Blackburn since 1979. David Prescott, son of the former deputy prime minister John Prescott, has had less luck, having made three failed attempts at Labour candidacy. But in May, Joe Dromey, son of Jack Dromey MP and the deputy Labour leader, Harriet Harman, was elected a Labour councillor in New Cross, London. The decision by Euan Blair, Tony’s eldest, to quit his job at the investment bank Morgan Stanley in London in 2012 and move to a recruitment firm in Coventry suggests that he, too, might fancy a career in politics.

Labour’s so-called Red Princes have all worked in politics – in think tanks, for the European Parliament or US Congress, or as campaign strategists. Neil Kinnock is the son of a coal miner and Jack Straw grew up on an Essex council estate but their offspring enjoyed affluent upbringings and effortless transitions from Oxbridge into high-flying jobs. What does this tell us about the state of the Labour Party – or even British democracy?

The House of Commons is a close-knit, domestic place. One in 12 MPs is related to another current or former MP. As inexplicable as it may seem to the electorate, sometimes politicians fall in love with each other: 14 MPs are married to current or former MPs. This leaves 22 children of MPs, 11 grandchildren and a smattering of cousins, nephews, nieces, great-nephews and great-nieces. Three MPs are the third generation of parliamentarians in their direct family (Labour’s Hilary Benn and the Tories Nicholas Soames and Nick Hurd, son of the former foreign secretary Douglas Hurd).

Political families are curiously common in democracies across the world. In 2013, Justin Trudeau became the leader of Canada’s Liberal Party. He is the son of Pierre Trudeau, who was prime minister between 1968 and 1984 (with a break in 1979-80). Also in 2013 South Korea voted in its first female president, Park Geun-hye, daughter of Park Chung-hee, the country’s authoritarian leader from 1961 until his assassination in 1979.

America’s founding fathers opposed inherited power but the son of John Adams, the second US president, went on to become the sixth president, and since then the Bush, Kennedy, Roosevelt, Clinton and Rockefeller clans have dominated modern state and federal politics.

Five years ago, the US-based economists Ernesto Dal Bó, Pedro Dal Bó and Jason Snyder published a study of American political dynasties in the Review of Economic Studies. They found that since 1966, roughly 7 per cent of US legislators have been related to other congressmen or senators (a smaller proportion than in the UK). Their analysis aimed to debunk a few convenient myths about political families.

First, are the children of politicians simply more likely to inherit political talent? Not if the Review of Economic Studies findings are anything to go by. When a congressman or congresswoman holds power for more than one term, this doubles the probability that one of their relatives will enter Congress. In the words of the authors: “Political power . . .
begets power.” Labour’s Red Princes can’t put their success down to superior social-democratic DNA.

Or perhaps it was natural for Straw, Prescott, Dromey and Kinnock to follow in their parents’ footsteps. The authors found that 10 per cent of lawyers in the US have fathers who do the same job, as do 14 per cent of carpenters and doctors (but just 1.5 per cent of economists). Yet, once you account for the relative size of these professions, politics emerges as by far the most dynastic. A GP’s child wanting to become a medic is striving to join a workforce of about 150,000 NHS doctors, while an MP’s son or daughter is hoping to take up one of just 650 seats in the Commons. That 22 have succeeded suggests that having a parent in politics is a big advantage.

So what do the Red Princes have over the rest of us? The Institute for Government estimates that it costs £41,000 over four years to become a parliamentary candidate. This is a lot but nothing compared to the $1.7m that American candidates need to raise for a seat in the House, or roughly $10m for one in the Senate. US candidates need to be good fundraisers; in the UK, it’s more important to ingratiate yourself with the party leadership.

So if you felt like being kind, you could say that Labour’s Red Princes have benefited from “high social capital”, but perhaps you would prefer the term “nepotism”. The children of MPs enter politics with an understanding of the Westminster system, as well as ready-made political connections and influential backers, which all help if you are looking for a parachute into a winnable seat.

In this way, at least, Labour reflects the society it aspires to represent: the UK has the lowest level of social mobility in the developed world. A 2011 survey by the recruitment agency Aldi found that over a third of Britons were not even interviewed for their job, having been recommended by a friend or relative. Politics, because it involves the trading of favours and the formation of alliances, lends itself quite naturally to nepotism – which might be why top-down attempts to tackle the problem have been so embarrassing. Last year, it emerged that the government’s anti-nepotism tsar, the Dragons’ Den entrepreneur James Caan, had given jobs to two of his own children.

For Labour, this is a problem. How does a party of political princelings and Westminster insiders convince anyone it can represent the working classes? Opening Labour up to less privileged candidates will require decisive reform.

Editor’s note, 16 December: David Prescott has been selected as Labour’s candidate for Gainsborough

Sophie McBain is a freelance writer based in Cairo. She was previously an assistant editor at the New Statesman.

This article first appeared in the 25 June 2014 issue of the New Statesman, Who was Franz Ferdinand?

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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?