Ukraine's problems haven't been caused by the West. (Photo: Getty)
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We can only stand up to Russian propaganda by being true to ourselves

Russian attempts to blame the West or Ukrainian fascists for the crisis in Ukraine are nonsense, but if we don't stay true to our values, we'll hand the Kremlin another PR victory.

Information warfare is the hot topic of the moment one year on from Russia’s annexation of Crimea. Caught off guard by the scale and audacity of Moscow’s propaganda offensive, Western governments and think tanks are straining to catch up with seminars and conferences devoted to analysing Russia’s mastery of the information landscape. The governments of the UK, Denmark, Lithuania and Estonia have tabled joint proposals for an EU response. The Ukrainian government is launching a TV news channel and mobilising an Internet army in a conscious effort to emulate Russian tactics. Matching Russia, spin for spin, seems to be the desired goal.

Some of this may be worthwhile, but much of it will be ineffective or even counterproductive unless greater effort is made to understand why Russian propaganda works. The starting point has to be an honest acknowledgement that the Kremlin’s most effective lies are built on foundations of truth. They play on the insecurities of Western societies that have become disoriented by economic crisis and the divisive legacy of the War on Terror. Messages are cleverly targeted at those who are already questioning their values and place in the world. Above all, Putin’s propagandists are adept at exploiting our mistakes and turning them against us.

Russia’s depiction of the revolt that ousted Viktor Yanukovych from power as a Western-sponsored fascist coup may be absurd, but it’s a fiction we helped to create. An intercepted phone call between US Assistant Secretary of State Victoria Nuland and her Ambassador in Kiev, in which they mused imperiously on who should run the country as the regime crumbled, made it seem like Washington was pulling the strings. The decision to include the Russophobic and anti-Semitic Svoboda party in the post-Yanukovych government allowed Putin to warn Crimeans that the fascists were coming. America didn’t overthrow Yanukovych, the people of Ukraine did. The far right has very little support in Ukraine; Svoboda failed to get 5% in last autumn’s parliamentary elections. Yet these mistakes enabled Russia’s information warriors to make their narrative stick.

A favoured theme of Russian propaganda is the status of ethnic Russian and Russian-speaking minorities in the ex-Soviet states. The Russian government routinely refers to the seventeen million or so ‘compatriots’ living in neighbouring countries as persecuted minorities in need of protection. Although the claim is flimsy, Ukrainian lawmakers helped to give it substance in the days following the fall of Yanukovych by voting to repeal legislation that granted the Russian language official status in certain regions. The decision was vetoed by the acting President, but the damage had already been done. The language issue still crops up in conversation with those who think that Putin’s claim to be acting in defence of human rights has some basis in fact.

The Baltic States have long been a focus of criticism from Moscow and last autumn a senior Russian Foreign Ministry official threatened them with “unfortunate consequences” over their treatment of ethnic Russian minorities. Some fear that Putin is preparing the ground for his next military adventure. The reality is that Russians living in the Baltic are far less likely to be victims of discrimination than, say, people from the Caucasus living in Moscow. Yet tough language requirements do mean that many Russians in Latvia and Estonia are unable to get citizenship and experience reduced educational and employment opportunities. More could and should be done to integrate them into society.

Given the fear of Russian intervention and the suspicion that ethnic Russians might be used as a ‘fifth column’, examples of overt discrimination and political persecution are quite rare. A particularly glaring exception concerns the treatment of Viktor Uspaskich, the Russian-born founder of the Lithuanian Labour Party, prosecuted for fraudulent accounting of his party’s finances. In a case that featured political pressure on the judiciary, the use of forged evidence and countless abuses of due process, Uspaskich was eventually sentenced to four years in prison in 2013. Only his immunity as an MEP now prevents his incarceration. Tomorrow, the European Parliament will vote on a request from the Lithuania authorities to revoke that immunity.

For once the suggestion that the judicial process has been politically manipulated doesn’t need to be inferred. A leaked US diplomatic cable records the boast of a senior Lithuanian official that he and his government “engineered the departure of Labor Party kingpin Viktor Uspaskich from Lithuania because of the latter's ties to the Russian SVR”. The SVR is Russia’s foreign espionage service, but no evidence linking Uspaskich to it has ever been produced, nor does a charge to that effect appear on any indictment. The only real connection appears to be Uspaskich’s Russian ethnicity.

Our best protection against Russian propaganda isn’t counter-propaganda; it’s the resolute defence of democratic standards. Compromising those standards plays into Putin’s hands by allowing him to blur the distinction between his methods and ours. This, in turn, weakens our capacity to resist by sowing doubt about what we are seeking to defend. A renewed attempt to restrict the Russian language in Ukraine would suggest to many people that this is not a fight between European values and authoritarianism, but between two different forms of nationalism. It’s a fight most Europeans would not wish to be part of. Weaponising the legal system to take out your political opponents is pure Putinism. If we weaken the rule of law to combat Russia, we have already lost.

We can’t defeat the cynicism of the Kremlin’s information war unless we remain true to ourselves. The European Parliament would be doing itself, Lithuania and the West in general a favour if it votes this week to uphold Victor Uspaskich’s immunity instead of handing Vladimir Putin yet another stick with which to beat us.

 

David Clark was Robin Cook’s special adviser at the Foreign Office 1997-2001.

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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?