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There's a crisis in our democracy. Why isn't anyone talking about it?

Just 24 per cent of people voted Tory. Just 21 per cent backed Labour. Why aren't we more worried, asks James Elder.

There’s a macabre and notionally scientific anecdote which you may perhaps have heard before:

If you take a frog and put it in a pan of boiling water it will immediately leap straight out again. However, if you take a frog and place it in a pan of cold water which you then very gradually heat, the frog will placidly remain there until it boils alive.

Thankfully, Wikipedia tells me that not only is the story biologically unsound but that scientists have had the good grace not to do any experiments of this type since the 19th century.

The metaphor which the anecdote provides can also be dubious: it’s frequently pulled out by rightwing conspiracists in the US when they try to claim that their nation is moving stealthily but inexorably toward socialism. But it does have some merit as an illustration of the concept of creeping normality, the idea that the world can change around us profoundly, but do it so gradually that we don’t notice. It only takes a moment’s thought to realise that this is certainly true in technology, architecture, culture, fashion, manners, attitudes and innumerable facets of life.

It can also be true of the health of our democracy.

At the general election, turnout was 66 per cent. This was slightly up on 2010, which was in turn slightly higher than 2005; it therefore notionally represented an upward trend and was reported as such.

But, as we know, close elections mean a higher turnout. The 2010 election was extremely close and 2015 was of course predicted in all quarters to be even closer.

Before that, we had a run of relatively one-sided elections where it was not surprising that many didn’t feel enthused to vote since it was clear that Labour were going to win.

Going back further, the last time that there was a really close election was 1992. The turnout then? Just under 78 per cent.

So, that’s 78 per cent turnout in 1992 and 66 per cent in 2015. That’s one hell of a drop in a quarter of a century.

Here’s my unfalsifiable assertion about what would have happened if there had been a turnout of 66 per cent in 1992. It would have been the story of that election. It would have been a cause of huge concern in the media, the civil service and all political parties. There would have been a bout of soul searching and perhaps a Royal Commission or other enquiry about how to reverse the trend.

Now, in 2015 this crisis of democracy has actually come to pass, but with scarcely any comment. The reason? Simply that it arrived in slower motion, giving us time to get used to the idea.

One worrying thing is that the trend seems likely to continue. After Ipsos MORI published its study of how Britain voted in 2015, which includes a breakdown by age, (showing that turnout for 18-24 year olds was a measly 43 per cent) there was a glib tweet from Asa Bennett, an assistant comment editor at the Telegraph, that ‘Britons become more Conservative as they grow older, and more likely to vote as people get older’. But this is not what the data shows.

We can only look at how propensity to vote changes with age by examining population cohorts over time. Inasmuch as this has been studied, there is some academic evidence that if a ‘voting habit’ is not acquired early, it will never be acquired. The evidence appears to be that non-voting is not a phase that some young people go through before gaining a sense of civic responsibility when they hit 40. Instead, there seem to be cohorts for whom voting is just something they have never done and – assuming nothing happens to dramatically change their thinking – never will.

You can, I think, see this in the estimated turnout for the same(ish) cohort in elections approximately 20 years apart. In that close election of 1992, MORI estimated that the turnout for 18-24 year olds was 63 per cent. In 2015, that cohort approximately matches up to 35-44 year olds, 64 per cent of whom were estimated by MORI to have turned out. Their turnout, in a similar type of election, has not gone up with age.

So, we can make the tentative prediction that unless something dramatic changes, only 43 per cent of the 2015 18-24 year olds will vote at future elections, as they get older.

I’ve done some very rough and ready calculations on how trends might continue in 10 years time, as the population ages and new cohorts enter the electorate. Using ONS population projections, I worked out roughly how the electorate is anticipated to break down into age groups for a 2025 Election. I assumed that particular cohorts of electors will continue to turnout in the same proportion as they did, according to the MORI figures, in 2015. So, for example: 72 per cent of 45-54 year olds turned out in 2015; I therefore assume that 72 per cent of 55-64 year olds will turn out in 2025. I’ve also, optimistically, assumed that the 18 year olds of 2025 will be as likely to vote as the 18 year olds of 2015.

All of these back-of-the-envelope calculations give me a predicted 2025 turnout, assuming a similarly close election to that of 2015, of 62 per cent. If it’s not a close election, that percentage could perhaps drop to the mid/low 50s.

If the trends continue still further, at some point in the next 25 years, we are going to have a Government elected on a turnout of 50 per cent or lower.

Possibly more worrying than the difference in turnout by age, is the variation by socio-economic group.

In 1992, 84 per cent of ABs are estimated to have turned out, compared to 77 per cent of DEs.
In 2015 this gap had opened up starkly: 75 per cent of ABs voted; only 57 per cent of DEs.

(as a reminder, the more-than-slightly archaic NRS social grades are based on occupation of the head of household:

A – Higher managerial, administrative or professional.
B – Intermediate managerial, administrative or professional.
D – Semi-skilled and unskilled manual workers.
E – Casual or lowest grade workers, pensioners, and others who depend on the welfare state for their income.)

Basically: the rich, established and comfortable are still voting in large numbers; the poor and vulnerable aren’t.

We’re at a place where big decisions are being taken about the shape of our state, our economy, our society and our environment.

About transfers of wealth between rich and poor – tax rates, benefit rates and eligibility, bank bailouts, tax evasion and avoidance.

About transfers of wealth between the generations – the housing market, pensions, care costs, childcare, education, inheritance tax).

About longterm issues like climate change, energy provision and infrastructure projects, which will affect the young far more than the old.

And yet the young and the poor are absenting themselves from these decisions in large numbers.

I have a lot of affluent, educated friends (virtually all of whom vote) and when I’m haranguing them on this subject, at this point someone will talk about apathy and how ultimately it’s up to individuals whether they can be bothered to vote. The idea of compulsory voting is often brought out as a potential solution.

The thing is though, it’s not about apathy, it’s about alienation. And low turnout is not the problem itself, only a symptom.

A couple of extended quotations from the Hansard Society’s 2014 Audit of Political Engagement are worthwhile at this point:

Two-thirds of the public (67 per cent) agree that it is their ‘duty to vote in all types of elections’ although fewer than half of 18-24 year olds (46 per cent) believe this compared to 79 per cent of those aged 65 and above."

The public’s sense of personal political efficacy continues to be stuck in a trough in the low 30s. Just 31 per cent think that if people like themselves get involved in politics ‘they really can change the way that the UK is run’. This is the joint lowest score recorded in the Audit series and compared to the position 18 months prior to the two previous general elections it is the same as that in Audit 6 (31 per cent), but somewhat lower than in the first Audit (37 per cent).

Despite levels of interest in and knowledge of politics holding up or improving, the public continue to feel relatively powerless in the political process. So too they feel that Parliament, the core institution of our democracy, does not actually encourage their involvement: less than a quarter (23 per cent) agree that it does so, compared to 30 per cent who said the same in previous Audits."

A third of the public (33 per cent) think that the system of governing in Britain works ‘extremely’ or ‘mainly’ well…With the exception of the 18-24s (24 per cent), all the age groups report a satisfaction rate between 31 per cent and 38 per cent…As one would expect, the higher the social class the more satisfied with the system of governing people are. However, the scale of difference between those in social classes AB and the rest is particularly stark: ABs have a net satisfaction rating of -3 per cent; C1s score -34 per cent; C2s -42 per cent; and DEs have a net satisfaction score of -53 per cent."

And so…

…compulsory voting does not tackle the root causes of non-voting or make a sizeable difference to the quality of communication between voters and parties. Compulsory voting would have to be associated with an overhaul of the culture of a voter’s duties via an education campaign. Compulsory voting runs the risk of treating the wrong problem – poor turnout rather than any of its myriad causes."

These people, whether young, or poor, or both, are not stupid. They have just noticed that the party political system is pretty arcane and archaic, and that – whoever’s in power – it doesn’t seem to do an awful lot for them. You may think that that statement is terribly unfair to the Labour governments of 1997 – 2010 and up to a point I might agree with you. But we can’t argue with how people feel.

And, really, in the 2015 campaign, who was taking note of what these millions of alienated abstainers were saying, and actually responding to it.

It’s all very depressing. But I want to finish with two big questions.

First, at what point does this become a crisis of legitimacy?

This year, a Conservative Government was formed on the basis of the votes of 36 per cent of the 66 per cent of voting age people who turned out – disproportionately the older and better off.

If this trend does worsen; if – say – overall turnout dips below 50 per cent, what happens then? We simply don’t know because it would be completely uncharted territory.

Second, why on earth is the left in general and Labour in particular not devising an entire strategy around this situations?

It’s the young and the poor not voting, in their millions.

We know that the young and the poor on the whole lean to the left.

We also know that they’re alienated from all the parties, from the Westminster Parliament, from the system as it stands.

Surely that’s the basis of – for want of a better word – an insurrection. Why the hell aren’t any of the Labour leadership candidates talking about how they might completely change their pitch, their approach, their policies to get these people engaged and involved with politics, and voting for the change that’s needed.

Apologies if I’ve missed it, but I have heard nothing about this from any of the candidates, or from the commentariat. There has been plenty (arguably, far too much) about how to woo centrist voters. There has been nothing about how to re-engage the millions of young and poor electors who could, if listened to and given something real and positive to vote for, be natural leftwing voters.

For the moment though, we’re all still sitting in the saucepan. It’s up to us to notice that something is gradually going very badly wrong. It’s not too late to make our leap to freedom, but the water is starting to get awfully hot.

This piece originally appeared on James Elder's blog, which you can read here

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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?