Jeremy Corbyn addresses an anti-austerity march. Photo: Getty Images
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Labour's new leader has one mission: avoiding extinction

Labour truly needs just "one more heave" - until their final extinction. 

The question of how to choose a Labour party leader, or the criteria to be applied are issues that, as yet, have not been properly addressed. The process of selecting a few individuals and then defining them as occupying a place within the left/right spectrum, or more broadly, attempting to otherwise assess their popularity within the party or the nation as a whole, amount to vague generalities that are hardly helpful.

A more methodical approach is called for. Before turning to individuals and their personalities it is more important to look to the longer-term future of the Labour party and as to what might best contribute to its success. If, on the other hand, our attention is first given to a group of leading individuals jostling amongst themselves for power, the real or underlying political issues tend to get pushed aside, as the quirks and eccentricities of personality drown out more important matters calling for attention.

This touches on the most vital question in the approach to politics: what is more important, personalities or policy? If the latter, then it may be necessary for the good of the party to reject existing candidates for leadership in seeking others to take their place. The fact that “personality” has mistakenly become the “stuff of politics” is made evident to anyone browsing the bookstalls of any party conference (and not merely Labour) where biographies and other sensational political narratives far outnumber titles on political philosophy, the latter so very necessary in the evaluation and formulation of practical policy for the benefit of the community.

This is not to imply, of course, that individuals are of no importance as only individuals float and develop new ideas in the first instance. Whilst good ideas may be more fully developed through consensus in the collectivity of a group environment, they invariably originate through the thinking of the individual, even though several individuals may propose similar policies within a closely defined time limit. This is not to suggest that proponents of valuable new ideas are necessarily best fitted to hold political office, but only that their ideas should be empowered by the relevant representative political group.

There has always been a divide between the wisdom of theorists (or philosophers) and those who actually legislate and oversee the success of policy. This is because whilst theorists are only concerned with ideal or perfect action, the politician working in the real or everyday world needs to compromise in meeting the demands of practicality, i.e., in considering the needs of conflicting groups or unforeseen sociological or other factors.

Only the tyrant enjoys the luxury of attempting to enforce policies in the purity of their pristine ideal, irrespective of whether it be a Dionysius of Syracuse under the direct guidance of Plato in the 4th century BC, or a Stalin under the guidance of Marx and Lenin in the 20th century, both of whom spelt disaster for the welfare and lives of their peoples. Although politicians within mixed forms of government have in all ages at the time of their power, been condemned by majorities as devious and corrupt, they have been infinitely preferable to the rule of tyrants. It is an established truism that the careers of all long-lived politicians end in “failure” since none are able to satisfy the demands of all sectors of the population, and it is only in hindsight with the passing of time that history somehow reinstates them with a certain glamour and a more balanced appreciation of their qualities.  

At the beginning, and the middle, and at the end of the 18th century, for example, coffee house talk by supposedly informed people argued that the country was on the verge of financial ruin and “going to the dogs,” and that the “politicians” were to blame, and yet these were times when the country was going from strength to strength. It seems as if events are only seen in their correct perspective long after they have been experienced as urgent issues, but that does not absolve the actors of the present from deciding on the future to the best of their ability.

The relevance of the above to the future of the Labour party is this: the movement has reached a crossroads or crisis point to a degree that may decide its survival or extinction. It cannot continue as it is for events and the transformation of society have severed its ideological roots. Its instinctive temptation is to revert to the past, but that would amount to an act of suicide of Michael Foot proportions. Its aim should remain the achievement of a just, free, and egalitarian society, but the pursuit of these aims in view of social change can only be realised by ditching its collectivist and class-based attitudes in favour of an individualist philosophy embracing the entire population. All these requirements call for a quite exceptional person to lead the Labour party.

In the normal course of slow-moving change, a more relaxed course could more easily be taken in selecting the next Labour leader. It could be left to “Buggins” turn to take up the baton. In any event, a little gentle jostling amongst the top leadership might produce a suitable candidate without harming the party. An emollient person with a smooth charm and a winning smile would surely emerge to satisfy the majority of Parliamentary members, and then everything could continue as before. But these are far from normal times, and a quite exceptional approach needs to be taken in choosing the next Labour leader.

Such a person, in ensuring the survival of the party, needs to have a clear appreciation of the sociological implications of change in society and the world of work over the past 60 years, and the vision and courage to present new values for the future and to denounce the old. Moreover, such a person must have a realistic grasp of the mechanisms of the financial-industrial system, and be prepared and competent to advocate constructive reforms before the City of London, or its political propagandists, are ready to counter-attack in promoting narrow interests only of benefit to themselves. Such policies of the Labour party would need to be strongly pro-business in appealing to the majority population irrespective of class, status, or occupation.

As the intellectual arguments for establishing such desirable polices have already been laid out in technical detail in numerous books by many authors, it should not be beyond the wit of leading parliamentarians to absorb this information before reformulating it into legislative proposals. Where there is the will there is the way, but if the will is lacking, one must turn to the culture of the parliamentary mindset for an explanation of this. Years of attrition by the financial establishment has led to the corruption of MPs of all parties, and the buying of favours has led to an apathy and comfort zone that is difficult to disturb.

There is, of course, an opposite point of view with regard to creating policy or appointing a new leader. There is the argument, especially in radical circles, that decisions should come from below rather than originating from and being imposed from above. Nowadays, this is most commonly expressed through the use of focus groups or opinion polls. This is true democracy in action. But in the first instance those in leadership need to identify and authorise the points for discussion and decision, and so when all is said and done, such decision-making does not really originate from below. The real value of focus groups and opinion polls is found in the general consensus they ensure, and this strengthens democracy and gives greater democratic authority to party or national leaders. In practice, in conjunction with referenda or plebiscites, this is perhaps as far as democratic government can hope to be extended successfully.

In view of the above, however, it needs to be noted that the idea that democracy or government should draw its authority from below evokes practical and philosophical questions of immense significance throughout the world at the present time. Firstly, if democracy is cited as a human right it cannot be denied in any circumstances where the demand is made. But just because it is a right does not mean it is workable or even desirable in all situations. And if this is so, it will be found, for example, that the ideology of post-War American foreign policy has often been wrong-footed and led to catastrophe. When newly emerging states in developing territories, or those that are released from military or religious dictatorships, are granted the outward trappings of democracy that quickly degenerate into tyrannies, then the idea of granting authority from below was clearly mistaken. The reason for such failure is either that peoples were culturally unprepared for democracy, or apathetic towards its concept, or were in outright enmity to the very concept.

Secondly, Marxist philosophy, or what is more correctly referred to as dialectical-materialism, argues that the proletariat should overthrow the social order. Although Marx and his theory of revolution may be repudiated and even forgotten today by parliamentary parties of the left throughout the developed world, his idea that government should derive its authority from below rather than from above remains firmly in the consciousness. It should also be borne in mind that Marx’s philosophy was exclusively based on the inevitability of revolution and the critique of capitalism as he found it. He made no attempt to draw a constructive picture of a socialist society the idea of which he even dismissed as an absurdity.

Again, the utopianism of his repudiation of the state together with the existence of capitalism in any form or guise has imprinted its damaging mark on parties of the left until the present day. This is not to suggest that left-leaning supporters repudiate the idea of the state, but they certainly disdain the idea of attempting to understand the financial-industrial system or to differentiate between its malign and benign characteristics or to utilise what may be salvaged in serving the majority.

Thirdly, a populism based on personality traits divorced from any clearly enunciated political beliefs or intent is often the worst and certainly the most deceptive form of democracy seeking to draw its authority from below. This is because it thrives on the ignorance of the electorate on the assumption that the latter is to be won over by a toothy grin or a handsome figure, rather than by issues of benefit to the public. In reality, such a style of politics (usually associated with the American way) entails a top down authority, as the real or ulterior purpose of action tends to be hidden behind a mask.

Such a mode of politics typically emerges in societies where all kinds of public positions are put up for election, e.g., the police, the judiciary, etc., as contrasted with internal promotion based on ability as decided within each profession. When democratic mechanisms are applied in inappropriate situations its purpose soon becomes self-destructive. This is because the general public cannot possibly be expected to have sufficient interest in or the necessary knowledge to assess the competence of competing professional specialists to positions of high office.

This is quite apart from the argument that the electoral addresses of such candidates for office are unlikely to match their ideal suitability for the posts to be filled. That is, the best professionals are not necessarily suited nor even willing to promote their case most effectively, either through lack of the right kind of extroverted personality, or through a natural modesty or tendency to self-effacement, or through disgust at the very idea of projecting themselves under such demeaning circumstances. Many of the lesser talented professionals, on the other hand, may be fully prepared to launch effectively a ruthless campaign in misleading the public as to their true ability, since their ambition may be more easily attained through the democratic process than through the considered and more objective judgement of their peers at an interviewing panel.

Electoral democracy is only workable when applied to issues of direct interest to voters, and competing judges, police or other public officials cannot present their qualifications in a comprehensible or workable format for a voting system. Hence they are forced by necessity to fall back on the smarmy manner or a fine set of white teeth in winning popular approval. As such traits have no connection with the end purpose of the democratic process they lead to all kinds of corruption, most notably to the buying of favours by vested interest groups. The most notorious example of this are those judges who now find themselves in the employment of powerful mafia families.

There are clearly limits to the practicality of electoral politics that need to be recognised. There is also a distinct difference between objectively desirable ends and those that are actually authorised by the democratic process, and this is irrespective of considerations of practicality or conflicting interest bodies. The only answer to this conundrum is the need for the higher general education of majorities in conjunction with the development of a higher sense of social ethics, so that the objectively best policies always conjoin with populist polices. A glance at the world today demonstrates clearly that those countries with the highest standards of general education for their majorities enjoy the most stable and prosperous democracies – in addition to the happiest societies; and contrariwise, those countries with the lowest educational standards find that democracy in any real sense is unattainable.

Nonetheless, even in the best working democracies it is necessary to recognise the limits of its viability, and to guard against those situations when it is turned into a farce, or presented as something it is clearly not. In this respect technical efficiency should always be given priority over populist measures or the misuse of democratic mechanisms. After all, no person in their right mind would like his brain surgeon to be selected through the popular vote of his community. A few remarks on the existing status of the House of Lords might at this point usefully help to illustrate these principles as they apply to Britain.

There is no way in which maintaining the hereditary principle may be defended in a democratic society. However, there exists something worse than preserving this ancient tradition. A House of Lords packed with moneyed moguls who have gained their seats through financial contributions to different parliamentary groups may lead to the worst form of government and to widespread corruption. Such members are unaccountable to sound political principles and the ordinary elector is often unable to know what they really represent or even think on the issues of the day. All that is known is that the House of Commons is held in hock to their multifarious financial and business interests that may or may not be listed for public inspection. More accountable and trustworthy would be the restoration of a hereditary landed aristocracy with their disinterested and preferably non-party approach to issues. At least they would be expected to support home-based interests against the selling of British assets to foreign owners for exploitation beyond our means to reverse.

At present there are two alternatives for the future of the House of Lords. The first and better-known alternative is to introduce an elective system for all its members, but this would achieve little more than duplicating many of the functions of the Commons and would merely fudge existing constitutional arrangements. A better alternative would be to reserve the Lords exclusively for the appointment of leading specialists in all kinds of occupational spheres from which expertise might be drawn by the Commons and Select Committees. Such a reformed House of Lords would fulfil a vital and much-needed function in view of the fact that today (in sharp contrast to the past) the majority of our elected representatives are purely politicians without professional experience in other areas of employment.

The above survey underlines the need that in selecting a new Labour party leader priority should be given to the qualities of such a candidate and such qualities should override any factors of populism or special appeal to vested interest groups associated with the party. The populist approach may be apt for the short term if the party is to follow in its existing tracks, but it would be quite inappropriate in the difficult task of rebuilding the party for the longer term.

A huge task confronts the party in merely ensuring its survival, and imaginative persons with a large knowledge base are essential for the task ahead. If old minds are incapable of adapting to change, then new blood (from all age groups) should be brought into the movement and formed into an elite cadre under the inspiration of a new leadership. The mould of politics must be broken by a new constructive vision for the future. It is unlikely that anything less ambitious may save the party from a lingering extinction.

 

Robert Corfe is a social thinker, political philosopher and author of multiple books, including Social Capitalism in Theory and Practice, published by Arena Books.

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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?