We feel more insecure than ever. Photo: Getty
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Anxiety society: we need politics to reverse our cultural condition of stress

Insecurity is pervasive in our society; we need big politics – not tinkering around the edges – to combat this.

As the size of household unsecured debt reaches record levels and the fear of interest rates rises becomes ever more real it is now clear that chronic social and economic insecurity is now the hallmark of our times. But this isn’t a problem for the few. The effects run right through our socio-economic system and all bar a tiny disconnected elite are left unaffected. The rest of us suffer consequences from daily struggle, and even destitution, to squeezed living standards, fears for the next generation and time pressures. Insecurity is now commonplace for the majority and no longer an ignorable condition for the minority. As the election hoves fully into view – will any of these deep-seated social, economic and emotional challenges be addressed by the political class? 

The full extent and impact of insecurity is revealed in a new report Something’s not right: insecurity and an anxious nation – with some eye-catching, and eye-watering, findings. Three quarters of middle and lower income families are unable to afford the mortgage on a local three bedroom home. Stress and anxiety have become a cultural condition with mental health problems costing the economy a staggering £105bn per year. Being in paid employment and on an average income is no guarantee of being financially secure given the unprecedented fall in real wages and rising cost of living. Zero hours contracts are the tip of the insecure employment iceberg with middle-class employment becoming increasingly like conditions long experienced by the working class.

Beyond the statistics, insecurity erodes our sense of community and shared responsibility. As Zygmunt Bauman warned in the Seventies, the superficial attractions of a consumption based, individualist existence deny the basic human need for belonging and bring with it uncertainty, loneliness and the future as the site of fear instead of hope. Fragmentation and discontinuity create a sense of flux rather than solidity and our lives become disjointed and inconsequential rather than flourishing and fulfilled. We are left as individual pieces of flotsam in a shifting world and when misfortune strikes, like redundancy, ill-health, disability or relationship breakdown, we are very much on our own as collective responsibility for shared fates is lost and it is insecurity that dominates.

The insidious impact of insecurity has further effects because if people are insufficiently secure and certain, the ground is laid for a politics of fear, division and accepting others as scapegoats. This is very evident in the appeal of Ukip’s message that our problems are caused by migrants and the solution is to stop immigration. Similarly, those most likely to have negative views of benefit claimants are most likely to feel insecure themselves.

The good news is that creating a more secure society lies within the power of UK government. Neither separately nor combined do globalisation, technological advancement or a multitude of other forms of change mean increasing insecurity is inevitable; nor does the need for wise management of the public finances. Key policy levers to redress insecurity are already in place.

To take just one example, housing today is marked by unaffordability, insecure private tenancies and an ever increasing Housing Benefit bill. With the main political parties floundering it is to civil society we must look for solutions. Shelter and Friends of the Earth have both set out detailed plans showing how public money needs to be used to fund bricks and mortar house building not subsidies to landlords through housing benefit. The way to do this is by lifting the borrowing cap on councils and also bringing vacant properties into use. Introducing more secure tenancies and fair rent controls requires legislation but is cost free. Rather than the current viscous circle of unaffordability, rising Housing Benefit and so on, a virtuous cycle can be created of more housing, reduced cost of living, and greater security for private tenants to plan their lives.

Compared to the complexities of so many problems faced by government, from climate change to conflict in the Middle East, policies to redress insecurity are obvious, often simple and certainly achievable. The impediment is not lack of policy ideas but the shackles of narrow, dogmatic, intolerant, conformism to an excessively free-market approach for which – using the example of housing – meaningful devolution of financial powers to councils, balancing rights between landlords and tenants, and challenging the right of property owners to leave buildings unused, are anathema. As with housing, plans have been developed within civil society covering policy domains from the New Economics Foundation’s Five steps to a more effective social security system to the Smith Institute’s Making work better: an agenda for government, all identifying detailed, feasible and affordable policy options.

Policies to redress insecurity are often simple and achievable but the challenge is one of political will and courage. Policy tinkering, or trying to make things a little less bad, will not redress insecurity. This is about big politics not policy minutiae. What is needed is a vision of a genuine system of security for every citizen achieved through progressive and positive policy development across the full range of government activity. Only by doing so will we move beyond an Own Your Own approach to a collective and shared responsibility that provides the lasting basis for lives that are free because they are secure.

Dr Michael Orton is currently on a career break from his job as a researcher at the Institute for Employment Research, University of Warwick. He is working on a major Compass project on social security and is now identifying solutions to socio-economic insecurity, within the context of building a Good Society.  Michael tweets as @MichaelOrton9

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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?