Ed Miliband won't be able to defeat the Greens on green policy. Photo: Getty
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Why Labour can't counter the Greens' popularity with green policies

A difficult climate.

This week, we have learnt that the Greens are now a bigger party than Ukip. Their membership rocketed up 2,000 overnight to reach 43,829. We already know that Labour, in response to the surge in support and membership of the small left-wing party over the past few months, has set up an anti-Green unit under shadow justice secretary Sadiq Khan in an attempt to counter the threat to its votes from Natalie Bennett's troops.

What we've also learnt this week is that the Prime Minister sees the Greens as such an important potential threat to his rivals that he has refused to take part in the leaders' televised debates unless Bennett is also included.

And news has broken today of Tory MPs' plans to split Labour's vote by encouraging left-wing voters in their constituencies to support the Greens, who are aiming to run in 75 per cent of seats this election.

However, one thing that has fallen under the radar, under all this political greenery, is Ed Miliband's launch of something called "action/2015" yesterday at a London school. There, he commited the next Labour government to seeking to "raise global ambitions for combating extreme poverty, inequality and climate change".

Here's what he promised on the latter subject:

In 2015, after the General Election here, the countries of the world will come together to agree two plans.

The first plan aims to eradicate poverty over the next fifteen years. And the second will tackle climate change.

These two plans affect all of us: everyone in this room, everyone across the world, and especially, everyone in your generation because they will help determine the world you will live in.

They matter. And what the British government does at these conferences – what it does in your name - matters too.

I know tackling climate change, global poverty and inequality are not as fashionable as they once were. But I also know they are more important than ever.

For me, they are not luxury items in our programme for change. They are not part of a branding exercise. They go to the heart of my beliefs and the reason why I entered politics.

This is about ensuring the next generation can do better than the last in this country and around the world . . . 

The progress of the last 15 years in the tackling poverty, improving health, on food security and access to sanitation could all be eroded if global temperatures are allowed to soar. I believe tackling climate change is the most important thing I can do in politics for my children’s generation. It demands leadership and resolve.

So in Paris next year, a Labour government would be pushing for global targets for reducing carbon emissions that rise every five years with regular reviews towards the long-term goal of what the science now tells us is necessary – zero net global emissions in the latter half of this century.

All admirable promises, and from a man who was the first ever Secretary of State for Energy and Climate Change. However, his green policy proposals will not help him counter the threat to his party's support from the Greens. This is due to three reasons:
 

It's not as "fashionable"

Miliband's own acknowledgement that climate change is not a "fashionable" subject is truer than maybe even he realises. The Labour leader was referring to David Cameron's 2005 rebrand of the Tories – hugging huskies and generally making his green credentials central to his image as Tory leader – and how it was all really a hollow "branding exercise".

However, green policy is no longer top of the agenda due to a number of reasons. Chiefly, economic realities have pushed it down the list of spending priorities. And it seems even the Greens have accepted this. They are no longer supported simply because they are the party of eco-friendly policies. Like the other parties, the Greens have been concentrating far more on economic policies in this parliament. However, their economic policies are formulated to tackle inequality and challenge austerity – free education, scrapping the welfare cap, reducing the pay gap, and turning the minimum wage into a living wage, for example. People are voting Green because the party provides a radical alternative to the economic policies, and consensus on the need for further austerity, of the Conservatives and Labour.
 

Playing on enemy turf

A little like the Tory leadership having to speak more than they'd like about EU membership and immigration, in an ill-advised attempt to shoot Ukip's fox, Labour talking about the environment is playing on the Greens' turf. Voters whose main priorities concern the environment are unlikely to vote for Miliband's handful of green proposals, emphasised almost as an afterthought a few months before the general election, when there is another party that historically has dedicated itself to environmentally-friendly policies.
 

Picking the wrong battle

There is a way for Labour to combat the Greens' popularity, but the environment isn't it. As I have reported before, the best rhetoric Labour can use is to emphasise the costly, predominantly middle-class nature of the "green lifestyle". Key figures in the Green Party admit that this is an area where it needs to improve, trying to broaden the appeal of living sustainably beyond the narrow section of society that can afford to do so. One of Miliband's aides revealed to my colleague, Tim, that this is Labour's best bet against the Greens, commenting: “We’ve found the best line of attack is to attack the Greens as an upper-middle class lifestyle choice.” There hasn't been much evidence of the party publicly using this attack line, but it would serve it well, and would be more effective than hoping a few green pledges will do the trick.

Anoosh Chakelian is senior writer at the New Statesman.

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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?