The new boss? Peter Robinson casts his vote in Belfast. Photo:Getty
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What does the DUP's first demand in a hung parliament mean?

Peter Robinson has declared his first prerequisite for his party's support in the event of a hung parliament. What does it mean, and how would it work?

Peter Robinson, the DUPs leader and First Minister in Northern Ireland has declared that in the case of a hung parliament the DUP would demand the creation of a Commission on the Union as a non-negotiable condition of their support.  This commission would seek to address the growing interest in separatism and nationalist parties, following the unexpected levels of support in the 2014 campaign for Scottish Independence and the predicted surge in SNP support at the general election.

Robinson argues that it is important not to punish Scotland for voting SNP but to look at why the Scottish people, who have historically voted by and large for Labour, have turned their back on the more traditional pro-union party. Labour have taken polls showing SNP gains at their expense seriously, they are reported to have turned their attention away from the majority of their Scottish seats to focus on and attempt to save their more high profile seats, such as the one being fought by Jim Murphy, the leader of Scottish Labour.

However, following the election it will be interesting and important for any pro-union party, including the two major parties, to analyse why nationalist parties are growing in popularity particularly in relation to Scotland. Robinson’s proposed commission to find out why and address the problem is far more constructive than much of the coverage and reporting from the pro-union side during the referendum which regularly alleged SNP supporters were engaged in dirty tricks and thuggish behaviour.

While, as with any campaign as controversial and passionately fought as the Independence referendum there may be less than salubrious elements involved, this was a referendum that inspired a lot of people who had previously felt disenfranchised. There was particularly strong support from young Scottish voters, a demographic that usually has the lowest level of engagement and voter turnout in elections. The referendum offered 16 and 17 year olds a chance to vote for the first time and many took the opportunity. Turnout was massive, with 84.6% coming out to vote. This was an excellent opportunity to engage them in a constructive debate, rather than the scare mongering that occurred.

Robinson’s speech also referenced the other nationalist parties in Westminster, the SDLP and Plaid Cymru. However, neither of these parties have made significant gains to the point of effectively eliminating the majority of pro-union seats in their jurisdiction. Furthermore, the SDLP are on the decline, so hardly a concern, they have lost many of their seats to Sinn Féin who, as an abstentionist party, have little effect on Westminster politics.

A commission on the union could be productive if it works towards equality and strengthening the bonds of the union for all four areas of the United Kingdom. However, it is important that the commission works towards a harmonious union and is not a political tool to fight against nationalist parties. That is hardly the place of a national government. This would mean that it should be open to representatives from all Westminster parties, not just the pro-union ones as suggested. Plaid Cymru, for example, may have the ultimate goal of an independent Wales, however this is unrealistic in the short term. Therefore, it is advantageous for them to be involved in the commission if it is to the benefit of Wales. The SDLP similarly are aware that Irish re-unification is unlikely in the short term and as such work towards a better Northern Ireland in accordance with their ideological beliefs.

The only potentially problematic party would be the SNP, who managed to garner a larger than expected amount of support during the campaign for Scottish independence and have shown signs of being interested in another independence referendum in the near future. However, while it is not in the SNPs interest to strengthen the union, it is in their interest to gain the best deal possible for Scotland. To exclude them on the other hand, is likely to increase feelings of disassociation from Westminster and encourage those who think Scotland will get a fairer deal in an independent Scotland. While nationalist parties have no reason to wish to strengthen the union, they do have reason to want to be involved in getting a fairer deal for their region. Any commission should focus on a fair union and addressing citizens’ concerns about the union rather than party politics.

It is also paramount that any commission is inclusive and progressive. Robinson’s speech argued that the SNP and the ‘nationalist bloc’ would act much like the Irish nationalists fighting for independence, however this comparison is inaccurate. The history of Ireland’s inclusion in the UK is different to Scotland, its nationalists also fought for independence using both the ballot and the bullet. Finally, Irish nationalists had mass support by the time they achieved independence and independence was put to a vote in the Dáil. If another referendum is agreed and the SNP have popular support behind them, then the Scottish people have expressed their desire for independence democratically and should not be denied. The DUP cannot bring the problems of the past to a commission that should be designed to create a more harmonious union, with the input of all regions and democratically elected representatives. 

A commission to seek to strengthen the Union through consensus by investigating and addressing the causes of increasing discontent and separatist feeling should be an important part of the next government’s plans. However what the DUP proposes is exclusionary and is open to being abused for the purpose of party politics rather than good governance of the United Kingdom. The best way to deal with the separatist threat is not to exclude them, the DUP should be familiar with the absolute failure of Thatcher’s policy of excluding Sinn Féin from any peace talks in Northern Ireland, banning their voices from broadcasts and many other incidents. Any party who chooses to negotiate with the DUP should look at this proposal carefully and ensure that any commission deal will be progressive rather divisive. Organising the commission, as suggested by Robinson, with only pro-union parties involved will only lead to increasing discontent, particularly if as polls suggest the majority of Scottish MPs are SNP MPs and are therefore excluded. Strengthening the United Kingdom must involve all of the United Kingdom, not a select few. 

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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?