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The coming storm

Tensions in the global economy are near breaking point. The looming turmoil in stock markets, interest rates and currencies will affect us all.

1. Making sense of the mayhem

When does a stock-market slide become a crash? And when does a financial crash spark an economic crisis? At the end of last year, few investors were giving much thought to such nice distinctions. Less than two months into 2016, with the leading global equity indices having dropped between 10 and 25 per cent at their worst, these questions are on everyone’s lips.

The turmoil in the equity markets should not really come as a surprise: the warning signs have been there for some time. Haggard veterans returning from other financial fronts – oil and metals exchanges; the emerging markets, including China; corporate bond funds – have been reporting heavy losses and instances of extreme volatility for more than 18 months. Safe-haven flows flooding into the soundest government bonds left more than $5trn of them yielding less than 0 per cent by late 2015; in effect, investors were paying governments for the privilege of lending to them. Even in the most liquid global asset class of all, the 24/7 market for foreign exchange, erratic behaviour has been on the rise. The Swiss franc, the world’s fifth most traded currency, jumped by nearly 30 per cent on one morning just over a year ago.

The potential of these dislocations to derail the UK’s economic recovery has not been lost on our policymakers. The Bank of England’s Monetary Policy Committee has comprehensively surrendered the idea of finally raising interest rates: its one member who had been voting in favour joined the more pessimistic majority earlier this month. The Chancellor, meanwhile, has been at pains in recent speeches to warn of the “cocktail of risks” facing the British economy. There seems little doubt, in other words, that the sudden acceleration of uncertainty on global financial markets is serious. But why is it happening – and what does it mean?

If the crisis of 2008 taught us anything, it is that, after three and a half decades of financial globalisation, we live in an uncannily interconnected world. A slide in the price of new-build homes in the suburbs of Las Vegas can lead to a death spiral in the shares of a German provincial bank. A squeeze in the market for an esoteric derivative product understood by only the two or three investment-bank rocket scientists in New York who designed it can force a collapse in a currency used by more than a billion people halfway round the world. The price of every financial asset is connected in some way to every other – and like the apocryphal butterfly flapping its wings and causing a hurricane a thousand miles away, a tiny bit of indigestion in the most innocuous of markets can precipitate violent convulsions elsewhere.

It is easy to assume that this complex web of interdependency makes the markets impossible to read – and in general, one should indeed be wary of plausible-sounding ­tipsters pointing to this or that particular share price as a sure sign that Armageddon or Nirvana is round the corner.

Yet although all financial prices are in this important sense equal, some are most definitely more equal than others. These days, there are three prices, above all the many thousands of others, which govern the global economy.

The first – probably the most fundamental of all, though by no means the most familiar – is the yield on the benchmark US treasury bond, the interest rate that the American government has to pay to borrow from savers for a term of ten years. This is the purest expression of the price of money: it captures the cost of acquiring purchasing power that you don’t already have in the world’s largest and wealthiest economy. It is also the best gauge of markets’ deepest fears – for when recession looms, investors want only the safest financial claims; and when disaster threatens, only claims on the US government will do. The whole world bids for US treasury bonds, making their prices fly and their yields plummet.

The second core price is better known. It is the level of the S&P 500 Index, the American equivalent of the FTSE 100: the price that summarises the value of the US stock market. The value of equity shares rises and falls with the waxing and waning of economic growth and corporate profitability – so this price measures the market’s appetite for risk, by taking the temperature of its enthusiasm for the largest, most productive and most inventive companies in the world.

The final member of this global financial triumvirate is the trade-weighted exchange rate of the US dollar, or its average exchange rate against the other major currencies of the world. The dollar is the world’s reserve currency – the one money that everyone, everywhere, is happy to use. It is the default denomination of every international debt contract; outstanding dollar loans to Chinese companies alone add up to nearly $1trn. When the dollar strengthens on the foreign exchanges, servicing dollar debt becomes more expensive. So this price calibrates the global cost of doing business.

These three prices exercise powerful gravitational pulls on every aspect of the world economy, like three moons inexorably drawing the global financial tides this way and that. As with real celestial bodies, when they are in alignment, the sea is smooth and investors enjoy plain sailing; but when their orbits diverge, we are in for equinoctial gales and rough crossings.

We need look no further than the current financial disruption for a case in point.

 

2. The markets’ trilemma

All three prices today stand close to historic extremes. At 1.75 per cent, the yield on the US treasury note is within touching distance of its all-time low in the modern era – 1.38 per cent, notched up in July 2012 at the height of the worldwide gloom over the euro crisis (see chart on page 27). The level of the US stock market, by contrast, is high; equity prices are “rich” after seven years of relentless rallies, even after the wobble of the past two months.

The dollar, meanwhile, is positively rampant. It has strengthened by 24 per cent against the US’s main trading partners in the past 18 months alone, and is more expensive than it was at the peak of the dotcom bubble in the late Nineties, when all everyone wanted was to own a bit of cor­porate America.

Separately, these prices may all make sense. When we try to fit all three together, however, the tensions underlying the current market turbulence become clear. Each of the three most likely short-term scenarios for the global economy is consistent with two of them. None is compatible with them all.

The first scenario to consider is the one the world’s policymakers are currently betting on: that the economic recovery in the United States, though a bit limp, remains on track. There may be icy winds blowing from China and the other emerging markets, and a lack of momentum in Europe and Japan. Yet fundamentally the US economy remains in good health, and the collapse since mid-2014 in commodity prices – from oil to copper and iron ore – is, on balance, a net positive for American growth.

The second scenario is the one that is all over the press: the US, and perhaps the whole world economy, is already in recession. China piled up a mountain of debt seeking to offset the negative effects of the last crisis, but that borrowing financed the construction of ghost cities and commodity speculation. Now the reckoning has arrived, the Chinese boom has gone into reverse, and the resulting fall in commodity prices is wreaking economic and political havoc from Riyadh to Rio de Janeiro – and even in the US itself.

The third scenario is superficially the least dramatic, and hence figures least in the news. It is that things have got neither suddenly better, nor suddenly worse. Fundamentally, the US and the world remain stuck in the same, mildly disappointing rut they have been in since 2009. Call it the “new normal”, call it “secular stagnation”, it is neither a proper recovery nor a new global recession: it is simply the familiar pattern of low growth, low inflation and low interest rates that we have been living with for the past seven years.

Which of these scenarios is the one we actually face? For the purpose of understanding the current market meltdown, it doesn’t really matter. The reason for investors’ manifest uncertainty is that none of these three scenarios is consistent with all three of the governing prices in the global system.

If the US recovery is intact, then a strong dollar and a fully valued stock market look reasonable – but US treasury yields should be significantly higher, reflecting the higher inflation and more hawkish monetary policy that robust growth inevitably implies.

If, on the other hand, the US is close to or in recession, then both low treasury yields and dollar strength could be justified as the product of a flight to the safest asset in the global system and its main reserve currency – but the stock market is hopelessly overpriced because profits are doomed to dry up.

If both these dynamic views turn out to be red herrings, and the US is to be stuck in the recent grind of low growth and low inflation for the foreseeable future, then it is easy to envision treasury yields staying low and equity markets staying high under the continuing influence of ultra-loose monetary policy. Yet by the same token, it is difficult to see why the dollar should keep up its stunning run: it has been the stark divergence in monetary policy – hawkish in the US, dovish everywhere else – that has propelled its dizzying ascent.

The problem is that one of these three scenarios (or something broadly similar) will eventually come to pass. When it does, at least one of the three master prices that govern the global economy will have to adjust, and probably rapidly. The markets are in the grip of a trilemma that will almost certainly prove highly disruptive – and investors are cottoning on.

 

3. Monetary policy rules, but for how much longer?

So much for the current market action and its proximate cause. What about the longer term?

The first and second scenarios – recovery and recession – at least have the virtue of being familiar. A global recovery would certainly be preferable to a global recession. But either scenario would at least restore confidence that the type of business cycle we have known for the past sixty years still exists. That would be important because it would mean that the conventional models of the economy remain valid, and policies derived from them the best bet there is.

The third scenario – a return to the lacklustre but at least relatively stable path of the past seven years – would be more worrying, for many investors. The reason is simple. It would reinforce the sense that neither investors nor policymakers really understand what is going on.

The key feature of the relative economic calm that the world experienced from 2009 to mid-2014 was the unprecedentedly loose monetary policy implemented by the world’s major central banks. Central bank interest rates in the US, the eurozone, Japan and the UK have been pinned close to zero. Policymakers have made delicately turned verbal commitments to keep rates low for a very long time – the policy experiment called “forward guidance”. Trillions of dollars, euros and yen, and hundreds of billions of pounds, have been freshly printed under the rubric of “quantitative easing” (QE) in order to make money still more freely available when the conven­tional strategy of cutting interest rates has been exhausted.

The striking thing about these policies is that they are only tangentially supported by the theoretical frameworks that these central banks use to understand the economy. As Ben Bernanke, the then chairman of the US Federal Reserve, put it in his final public appearance in office in 2014, “[T]he problem with QE is it works in practice but it doesn’t work in theory.”

People who don’t spend their time staring at Bloomberg screens might be forgiven for asking why this matters. If, as Bernanke says, QE works, then who cares whether we know why it does or not?

The reason is that all policy – and monetary policy more than any other kind – depends critically on people’s expectations of what its outcome will be and their confidence that the policymakers understand the mechanism. In the field of public policy, the risks of unintended consequences are always large. They are multiplied many times over if the people in charge cannot explain why their actions are producing a particular result.

The looming risk is that monetary policy – the one tool that governments have been willing to use aggressively over the past seven years – starts to lose its grip. If its potency depends on investors believing that central banks know what they are doing, but those central banks lose their credibility, monetary policy may cease to work.

The point is far from academic. At the end of January, the Bank of Japan surprised the world by announcing that its monetary easing had not, as many had assumed, reached its limits. Concerned that the turmoil on the markets would spark a strengthening of the yen, it took its policy interest rate into negative territory for the first time ever in order to discourage safe-haven flows to its currency.

Until now, the near-automatic effect of such a loosening has indeed been to drive investors into riskier yen-denominated ­assets and out of the yen altogether, leading to its sharp depreciation against other major currencies over the past three and a half  years.

Now, it seems, the magic is wearing off. Bond yields dropped as expected, all right; but the yen did not comply. It has strengthened more than 4 per cent against the US dollar since the new loosening policy was introduced. The credibility of the Bank of Japan is fading. The market does not believe it can do what it wants to do – or even, perhaps, that it knows how its experimental interventions really work.

Investors’ bigger fear is that such doubts infect the Federal Reserve. The consequences
of such a crisis of confidence in the powers of the most central of central banks would be of an order of magnitude far more serious.

Ever since the collapse of the Bretton Woods system of pegged exchange rates in 1971, the sole guarantee that currencies will maintain their purchasing power, both domestically and abroad, has been confidence in central banks’ discretionary policies. A loss of faith in the consensus model of monetary policy would pitch us into the anchorless world that the architects of the Bretton Woods system always feared.

The past few weeks have been nerve-shredding for those who work on the financial markets. They should prepare for more of the same – and those who have nothing to do with the trading of stocks, bonds and currencies should ready themselves, too.

If it is belief in the power of loose monetary policy that has kept bond yields low and equity prices high, we should prepare for spikes in interest rates and stock-market crashes – with painful ramifications for companies and households that need to finance their activity. If it is confidence in the power of central banks to manipulate the value of their currencies that has bolstered the dollar and depressed the euro and the yen, then we should expect dramatic re-evaluations of these exchange rates, with inevitably disruptive consequences for global trade.

Over the longer term, the most consequential result of all will probably be an urgent search for a new framework for monetary policy, and above all for a new anchor. History – and, in the US, actively discussed political proposals – would suggest that the abandonment of discretionary policymaking in favour of formulaic rules, or even a return to a gold standard, are the candidates most likely to be chosen at short notice.

The sad fact is that these measures would represent last resorts from failure. Flexibility in monetary policy, credibly deployed, is probably the single most effective tool of government ever invented. It would be a confused and benighted age that chose to abandon it in favour of more primitive techniques of control.

Macroeconomist, bond trader and author of Money

This article first appeared in the 18 February 2016 issue of the New Statesman, A storm is coming

RAY TANGT/ANADOLU AGENCY/GETTY IMAGES
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Losing Momentum: how Jeremy Corbyn’s support group ran out of steam

Tom Watson says it is destroying Labour. Its supporters say it is a vital force for change. Our correspondent spent six months following the movement, and asks: what is the truth about Momentum?

1. The Bus

 The bus to the Momentum conference in Liverpool leaves at seven on a Sunday morning in late September from Euston Station, and the whole journey feels like a parody of a neoliberal play about the failings of socialism. We depart an hour late because activists have overslept and we cannot go without them. As we wait we discuss whether Jeremy Corbyn will be re-elected leader of the Labour Party this very day. One man says not; a young, jolly girl with blonde hair cries: “Don’t say that on Jezmas!” She is joking, at least about “Jezmas”.

A man walks up. “Trots?” he says, calmly. He is joking, too; and I wonder if he says it because the idea of Momentum is more exciting to outsiders than the reality, and he knows it; there is an awful pleasure in being misunderstood. Momentum was formed in late 2015 to build on Corbyn’s initial victory in the Labour leadership election, and it is perceived as a ragtag army of placard-waving Trots, newly engaged clicktivists and Corbyn fanatics.

We leave, and learn on the M1 that, in some terrible metaphor, the coach is broken and cannot drive at more than 20mph. So we wait for another coach at a service station slightly beyond Luton. “Sabotage,” says one man. He is joking, too. We get off; another man offers me his vegan bread and we discuss Karl Marx.

A new coach arrives and I listen to the others discuss Jeremy Corbyn’s problems. No one talks about his polling, because that is depressing and unnecessary for their purpose – which, here, is dreaming. They talk about Corbyn as addicts talk about a drug. Nothing can touch him, and nothing is ever his fault. “There are problems with the press office,” says one. “Perhaps he needs better PAs?” says another.

One man thinks there will be a non-specific revolution: “I hope it won’t be violent,” he frets. “There have been violent revolutions in the past.” “I stuck it out during Blair and it was worth it,” says another. “They’ve had their go.” “We don’t need them [the Blairites],” says a third. “If new members come in, it will sort itself out,” says a fourth.

I have heard this before. Momentum supporters have told me that Labour does not need floating voters, who are somehow tainted because they dare to float. This seems to me a kind of madness. I do not know how the Labour Party will win a general election in a parliamentary democracy without floating voters; and I don’t think these people do, either.

But this is a coach of believers. Say you are not sure that Corbyn can win a general election and they scowl at you. That you are in total agreement with them is assumed, because this is the solidarity bus; and if you are in total agreement with them they are the sweetest people in the world.

That is why I do not tell them that I am a journalist. I am afraid to, and this fear baffles me. I have gone everywhere as a journalist but with these, my fellow-travellers on the left, I am scared to say it; and that, too, frightens me. MSM, they might call me – mainstream media. What it really means is: collaborator.

The man beside me has been ill. He talks sweetly about the potential renewal of society under Corbyn’s Labour as a metaphor for his own recovery, and this moves him; he has not been involved in politics until now. I like this man very much, until I mention the Jewish Labour MP Luciana Berger and the anti-Semitism she has suffered from Corbyn supporters and others; and he says, simply, that she has been employed by the state of Israel. He says nothing else about her, as if there were nothing else to say.

We listen to the results of the leadership election on the radio; we should be in Liverpool at the Black-E community centre to celebrate, but the solidarity bus is late. Corbyn thanks his supporters. “You’re welcome, Jeremy,” says a woman in the front row, as if he were on the coach. She nods emphatically, and repeats it to the man who isn’t there: “You’re welcome, Jeremy.”

In Liverpool, some of the passengers sleep on the floor at a community centre. The venue has been hired for that purpose: this is Momentum’s commitment to opening up politics to the non-connected, the previously non-engaged, and the outsiders who will attend their conference in a deconsecrated church, even as the official Labour conference convenes a mile away. But never mind that: this is the one that matters, and it is called The World Transformed.

 

2. The Conference

Later that day, outside the Black-E, a man comes up to me. Are you happy, he asks, which is a normal question here. These are, at least partly, the politics of feelings: we must do feelings, because the Tories, apparently, don’t. I say I’m worried about marginal seats, specifically that Jeremy – he is always Jeremy, the use of his Christian name is a symbol of his goodness, his accessibility and his singularity – cannot win them.

“The polls aren’t his fault,” the man says, “it’s [Labour] people briefing the Tories that he is unelectable.” I do not think it’s that simple but it’s easy to feel like an idiot – or a monster – here, where there is such conviction. As if there is something that only you, the unconvinced, have missed: that Jeremy, given the right light, hat or PA, could lead a socialist revolution in a country where 13 million people watched Downton Abbey.

But the man does say something interesting which I hope is true. “This is not about Jeremy, not really,” he says. “It is about what he represents.” He means Momentum can survive without him.

There is a square hall with trade union banners and a shop that sells Poems for Jeremy Corbyn, as well as a Corbyn-themed colouring book. When I am finally outed as a journalist, and made to wear a vast red badge that says PRESS, I attempt to buy one. “That’s all journalists are interested in,” the proprietor says angrily. That is one of our moral stains, apparently: a disproportionate (and sinister) interest in colouring books.

I go to the Black Lives Matter event. A woman talks about the experience of black students in universities and the impact of austerity on the black community. Another woman tells us that her five-year-old son wishes he was white; we listen while she cries. I go to the feminism meeting and change my mind about the legalisation of prostitution after a woman’s testimony about reporting an assault, and then being assaulted again by a police officer because of her legal status. Then I hear a former miner tell a room how the police nearly killed him on a picket line, and then arrested him.

This, to me, a veteran of party conferences, is extraordinary, although it shouldn’t be, and the fact that I am surprised is shameful. Momentum is full of the kinds of ­people you never see at political events: that is, the people politics is for. Women, members of minority communities (but not Zionist Jews, naturally), the disabled: all are treated with exaggerated courtesy, as if the Black-E had established a mirror world of its choosing, where everything outside is inverted.

When Corbyn arrives he does not orate: he ruminates. “We are not going to cascade poverty from generation to generation,” he says. “We are here to transform society and the world.” I applaud his sentiment; I share it. I just wish I could believe he can deliver it outside, in the other world. So I veer ­between hope and fury; between the certainty that they will achieve nothing but an eternal Conservative government, and the ever-nagging truth that makes me stay: what else is there?

There is a rally on Monday night. Momentum members discuss the “purges” of socialist and communist-leaning members from Labour for comments they made on social media, and whether détente is possible. A nurse asks: “How do we know that ‘wipe the slate clean’ means the same for us as it does for them? How on Earth can we trust the likes of Hilary Benn who dresses himself up in the rhetoric of socialism to justify bombing Syria? The plotters who took the olive branch offered by Jeremy to stab him in the back with another chicken coup?” I am not sure where she is going with that gag, or if it is even a gag.

The next man to speak had been at the Labour party conference earlier in the day; he saw Len McCluskey, John McDonnell and Clive Lewis on the platform. “Don’t be pessimistic, folks,” he cries. “On the floor of conference today we owned the party. Progress [the centrist Labour pressure group] are the weirdos now. We own the party!”

A man from Hammersmith and Fulham Momentum is next. “The national committee of Momentum was not elected by conference,” he says. “It’s a committee meeting knocked up behind closed doors by leading people on the left, including our two heroes.” He means Jeremy Corbyn and John McDonnell. This is explicit heresy, and the chair interrupts him: “Stan, Stan . . .” “I’m winding up!” he says. “We need a central committee of Momentum elected by conference,” he says, and sits down.

The following day Corbyn speaks in the hall in front of golden balloons that spell out S-H-E-E-P. It may be another gag, but who can tell, from his face? This is his commitment to not doing politics the recognisable way. He is the man who walks by himself, towards balloons that say S-H-E-E-P. (They are advertising the band that will follow him. They are called, and dressed as, sheep.) The nobility of it, you could say. Or the idiocy. He mocks the mockers of Momentum: is it, he was asked by the mainstream media, full of extremists and entryists? “I’m not controlling any of it,” he says calmly, and in this calmness is all the Twitter-borne aggression that people complain of when they talk about Momentum, for he enables it with his self-satisfied smile. “It’s not my way to try and control the way people do things. I want people to come together.” He laughs, because no one can touch him, and nothing is ever his fault.

I meet many principled people in Liverpool whose testimony convinces me, and I didn’t need convincing, that austerity is a national disaster. I meet only one person who thinks that Momentum should take over the Labour Party. The maddest suggestion I hear is that all media should be state-controlled so that they won’t be rude about a future Corbyn government and any tribute colouring books.

 

3. The HQ

Momentum HQ is in the TSSA transport and travel union building by Euston Station in London. I meet Jon Lansman, Tony Benn’s former fixer and the founder of Momentum, in a basement room in October. Lansman, who read economics at Cambridge, lived on the fringes of Labour for 30 years before volunteering for Corbyn’s campaign for the leadership.

The terms are these: I can ask whatever I want, but afterwards James Schneider, the 29-year-old national organiser (who has since left to work for Corbyn’s press team), will decide what I can and cannot print. ­Momentum HQ wants control of the message; with all the talk of entryism and infighting reported in the mainstream media, the movement needs it.

There is a civil war between Jon Lansman and the Alliance for Workers’ Liberty (AWL) and other far-left factions, which, I am told, “wish to organise in an outdated manner out of step with the majority of Momentum members”. Some of the Momentum leadership believe that the AWL and its allies want to use Momentum to found a new party to the left of Labour. Jill Mountford, then a member of Momentum’s steering committee, has been expelled from Labour for being a member of the AWL. It screams across the blogs and on Facebook; more parody. We don’t talk about that – Schneider calls it “Kremlinology”. It is a problem, yes, but it is not insurmountable. We talk about the future, and the past.

So, Lansman. I look at him. The right considers him an evil Bennite wizard to be feared and mocked; the far left, a Stalinist, which seems unfair. It must be exhausting. I see a tired, middle-aged man attending perhaps his fifteenth meeting in a day. His hair is unruly. He wears a T-shirt.

The last Labour government, he says, did one thing and said another: “Wanting a liberal immigration policy while talking tough about refugees and migrants. Having a strong welfare policy and generous tax credits while talking about ‘strivers’ and ‘scroungers’ unfortunately shifted opinion the wrong way.”

It also alienated the party membership: “Their approach was based on ensuring that everyone was on-message with high levels of control.” It was an “authoritarian structure even in the PLP [Parliamentary Labour Party]. Even in the cabinet. It killed off the enthusiasm of the membership. They never published the figures in 2009 because it dropped below 100,000. We’ve now got 600,000.” (The membership has since dropped to roughly 528,000.)

And the strategy? “If you have hundreds of thousands of people having millions of conversations with people in communities and workplaces you can change opinion,” he says. “That’s the great advantage of ­having a mass movement. And if we can change the Labour Party’s attitude to its members and see them as a resource – not a threat or inconvenience.”

That, then, is the strategy: street by street and house by house. “We can’t win on the back of only the poorest and only the most disadvantaged,” he says. “We have to win the votes of skilled workers and plenty of middle-class people, too – but they are all suffering from some aspects of Tory misrule.”

I ask about polling because, at the time, a Times/YouGov poll has Labour on 27 per cent to the Tories’ 41 per cent. He doesn’t mind. “It was,” he says, “always going to be a very hard battle to win the next election. I think everyone across the party will privately admit that.” He doesn’t think that if Yvette Cooper or Andy Burnham were leader they would be polling any better.

Upstairs the office is full of activists. They are young, rational and convincing (although, after the Copeland by-election on 23 February, I will wonder if they are only really convincing themselves). They talk about their membership of 20,000, and 150 local groups, and 600,000 Labour Party members, and the breadth of age and background of the volunteers – from teenagers to people in their eighties. One of them – Ray Madron, 84 – paints his hatred of Tony Blair like a portrait in the air. He has a ­marvellously posh voice. Most of all, they talk about the wounds of austerity. Where, they want to know, is the anger? They are searching for it.

Emma Rees, a national organiser, speaks in the calm, precise tones of the schoolteacher she once was. “A lot of people are sick and tired of the status quo, of politics as usual, and I think trying to do things differently is hard because there isn’t a road map and it’s not clear exactly what you’re supposed to do,” she says. She adds: “It is a coalition of different sorts of people and holding all those people together can sometimes be a challenge.”

Is she alluding to entryism? One activist, who asks not to be named, says: “I don’t want to insult anyone, but if you rounded up all the members of the Socialist Workers Party [SWP] and the Socialist Party and any other ultra-left sect, you could probably fit them in one room. Momentum has 20,000 members.”

The SWP were outside at The World Transformed in Liverpool, I say, like an ambivalent picket line. “Well,” James Schneider says pointedly, “they were outside.”

Momentum, Emma Rees says, “is seeking to help the Labour Party become that transformative party that will get into government but doesn’t fall back on that tried and failed way of winning elections”.

They tell me this repeatedly, and it is true: no one knows what will work. “The people who criticised us don’t have any route to electability, either,” says Joe Todd, who organises events for Momentum. He is a tall, bespectacled man with a kindly, open face.

“They lost two elections before Jeremy Corbyn. It’s obvious we need to do something differently,” he says. “Politics feels distant for most people: it doesn’t seem to offer any hope for real change.

“The left has been timid and negative. More and more people are talking about how we can transform society, and how these transformations link to people’s everyday experience. Build a movement like that,” Todd says, and his eyes swell, “and all the old rules of politics – the centre ground, swing constituencies to a certain extent – are blown out of the water.”

Momentum sends me, with a young volunteer as chaperone, to a rally in Chester in October to watch activists try to muster support for local hospitals. They set up a stall in the centre of the shopping district, with its mad dissonance of coffee shops and medieval houses. From what I can see, people – yet far too few people – listen politely to the speeches about austerity and sign up for more information; but I can hear the hum of internal dissent when an activist, who asks not to be named, tells me he will work for the local Labour MP to be deselected. (The official Momentum line on deselection is, quite rightly, that it is a matter for local parties.)

We will not know what matters – is it effective? – until the general election, because no one knows what will work.

 

4. The Fallout

Now comes the result of the by-election in Copeland in the north-west of England, and the first time since 1982 that a ruling government has taken a seat from the opposition in a by-election. Momentum canvassed enthusiastically (they sent 85 carloads of activists to the constituency) but they failed, and pronounce themselves “devastated”. The whispers – this time of a “soft” coup against Corbyn – begin again.

Rees describes calls for Jeremy Corbyn to resign as “misguided. Labour’s decline long pre-dates Corbyn’s leadership.”

This produces a furious response from Luke Akehurst, a former London Labour ­councillor in Hackney, on labourlist.org. He insists that Labour’s decline has accelerated under Corbyn; that even though Rees says that “Labour has been haemorrhaging votes in election after election in Copeland since 1997”, the majority increased in 2005 and the number of votes rose in 2010, despite an adverse boundary change. “This,” he writes, “was a seat where the Labour vote was remarkably stable at between 16,750 and 19,699 in every general election between 2001 and 2015, then fell off a cliff to 11,601, a third of it going AWOL, last Thursday.”

And he adds that “‘85 carloads of Mom­entum activists’ going to Copeland is just increasing the party’s ability to record whose votes it has lost”.

But still they plan, and believe, even if no one knows what will work; surely there is some antidote to Mayism, if they search every street in the UK? Momentum’s national conference, which was repeatedly postponed, is now definitively scheduled for 25 March. Stan who complained about a democratic deficit within Momentum at The World Transformed got his way. So did Lansman. In January the steering committee voted to dissolve Momentum’s structures and introduce a constitution, after consulting the membership. A new national co-ordinating group has been elected, and met for the first time on 11 March – although, inevitably, a group called Momentum Grassroots held a rival meeting that very day.

I go to the Euston offices for a final briefing. There, two young women – Sophie and Georgie, and that will make those who think in parodies laugh – tell me that, in future, only members of the Labour Party will be allowed to join Momentum, and existing members must join Labour by 1 July. Those expelled from Labour “may be deemed to have resigned from Momentum after 1 July” – but they will have a right to a hearing.

More details of the plan are exposed when, a week later, a recording of Jon Lansman’s speech to a Momentum meeting in Richmond on 1 March is leaked to the Observer. Lansman told the Richmond branch that Momentum members must hold positions within the Labour Party to ensure that Corbyn’s successor – they are now talking about a successor – is to their liking. He also said that, should Len McCluskey be re-elected as general secretary of Unite, the union would formally affiliate to Momentum.

Tom Watson, the deputy leader of the party, was furious when he found out, calling it “a private agreement to fund a political faction that is apparently planning to take control of the Labour Party, as well as organise in the GMB and Unison”.

There was then, I am told, “a short but stormy discussion at the away day at Unison” on Monday 20 March, where the inner circle of John McDonnell, Diane Abbott and Emily Thornberry “laid into” Watson, but Shami Chakrabarti made the peace; I would have liked to see that. Watson then released a bland joint statement with Corbyn which mentioned “a robust and constructive discussion about the challenges and opportunities ahead”.

Jon Lansman, of course, is more interesting. “This is a non-story,” he tells me. “Momentum is encouraging members to get active in the party, to support socialist policies and rule changes that would make Labour a more grass-roots and democratic party, and to campaign for Labour victories. There is nothing scandalous and sinister about that.” On the Labour right, Progress, he notes, does exactly the same thing. “Half a million members could be the key to our success,” he says. “They can take our message to millions. But they want to shape policy, too. I wouldn’t call giving them a greater say ‘taking over the party’” – and this is surely unanswerable – “it’s theirs to start with.”

Correction: This article originally named Luke Akehurst as a Labour councillor. Akehurst stood down in 2014.

This article first appeared in the 23 March 2017 issue of the New Statesman, Trump's permanent revolution