Tony Blair. Photo: Sang Tan - WPA Pool/Getty Images
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When Labour comes to terms with embarrassing Uncle Tony, it can finally start to defend its record

Blair's most memorable legacy, the Iraq war, has Labour MPs distancing themselves from their own time in power. But there's a lot more to the post-1997 years - and some of it's pretty good.

Almost every family has an embarrassing relative – the one who makes eyebrow-raising comments about Chinese gymnasts or once had to be carried out of Aunt Sylvia’s second wedding face down in the top tier of the sponge cake. Even the Middletons, who produced our preternaturally perfect future queen Kate, have one: Uncle Gary, once caught by the News of the World with drugs and ladies of the night in his Ibiza pad, La Maison de Bang Bang.

But that’s enough about a man with lounge-lizard dress sense and a deep tan who has been accused of trading on his personal connections. What I really want to talk about is Tony Blair.

Our former prime minister is the Labour Party’s embarrassing uncle: the rich one who slips you cash but you’d rather people didn’t know is related to you. This was made obvious earlier this month when Blair donated £106,000 to help candidates in 106 of Labour’s target seats. The structure of the donation felt like candidates were being forced to take a test on how they felt about Blairism. In the end, only a handful turned the money down; one of the few who did was a PPC who served in the Iraq war.

This is a decisive moment. All the indications are that the 2015 Labour intake will be more left-leaning than its predecessors – for example, a snapshot poll by CND found that three-quarters of them did not want to renew our commitment to Trident. So it is heartening that so many of them accepted Blair’s money. It suggests the party is finally coming to terms with the legacy of his premiership in a way that recognises the good as well as bemoans the bad.

To be fair, the left has always been more prone to self-flagellation. The ability to criticise your own side can even be an endear­ing trait, particularly when contrasted with the ridiculous over-veneration the right gives to its most divisive leaders. As Simon Heffer argued in these pages in January, some right-wingers call it heresy to mention Winston Churchill’s prejudices and pre-war failures. When Margaret Thatcher died, some newspapers practically patrolled the streets searching for anyone who didn’t look sad enough in order to berate them for their lack of patriotism. Somehow, I doubt the Guardian and Mirror will return the favour when Our Blessed Tony shuffles off this mortal coil. In fact, lefties will probably lead the effigy-burning.

This hypercritical streak has its downsides. In the 2010 Labour leadership election, Ed Miliband’s candidacy was undoubtedly helped by the simple fact that he was not in the Commons at the time of the Iraq war vote in 2003, unlike his brother, David. He is said to have opposed it ­privately at the time but that was a much less difficult decision to make from the safety of Harvard. He simply never faced the choice between party loyalty and conscience. As a result, Ed Miliband was free to reject the toxic legacy of the war, as car bombs scarred Baghdad and instability spread across the region. Because he didn’t have to “own” the decision to back the Iraq misadventure, he was free to present himself as a break with the past.

The trouble was, that rejection spread to encompass not just the Iraq war but all the good bits of New Labour. The party’s economic legacy is now defined just the way the Tories want it, by the financial crisis (as if the right would have regulated the banks much more strictly during the boom years) rather than by years of growth, lower poverty rates and higher living standards.

It would have helped, of course, if Blair had behaved differently on leaving office. Even his closest supporters must wish he had dis­appeared from sight and emerged only to show off his nauseating paintings of West Highland terriers, like George W Bush. Instead, there he was, looking harried in open-necked shirts in his role as the Quartet’s Middle East peace envoy. In terms of symbolic reminders of failure, this is like Gordon Brown leaving No 10 and going to work in H Samuel.

As a result, Labour kept feeling the need to distance itself from Blair, hobbling its ability to defend its record. For fear of someone – probably from its own side – shouting “Iraq!”, its politicians and activists have taken a voluntary vow of silence, preventing them from boasting about creating the national minimum wage and enshrining child poverty targets in law. They have been reluctant to mention successes in Kosovo, Northern Ireland or Sierra Leone, even in the same breath as condemning the failure in Iraq. It is now taken for granted how dramatically New Labour changed Britain’s centre of gravity by wrenching the Tory ­party leftwards on social issues such as gay relationships, racial equality and the promotion of women in public life.

As Zoe Williams observed in the Guardian last year: “Even to say that ‘other things happened during the Labour term besides a war many of us did not agree with’ is seen as disrespectful.” At its worst, this distancing strayed into an overt longing for the purity of opposition. If only the Tories had been in government! They never would have gone to war in Ira– sorry, what’s that? They voted for it, too?

I am not arguing that politics should be without morals, or that politicians should not be held to account for their mistakes. But Labour’s failure to come to terms with Blair’s legacy is a microcosm of the new perfectionism sweeping politics, where it feels morally purer to vote None of the Above rather than to risk getting it wrong. I worry that we don’t want politics to involve compromises, or hard choices, or human frailty.

Like any occasionally embarrassing relative, Uncle Tony still causes Labour twinges of shame. But it seems the party is finally ready to acknowledge that he has always been part of the family.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 19 March 2015 issue of the New Statesman, British politics is broken

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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?