Getty
Show Hide image

The winners and losers of the US election

From Elizabeth Warren and memes, to glum Fox News pundits and Paul Ryan's biceps.

Winner: Elizabeth Warren

The bankruptcy law expert, consumer rights advocate, Harvard Law School professor and grandmother defeated incumbent Scott Brown to become the first woman to represent Massachusetts in the Senate. A win for everyone who believes that someone with a huge depth of knowledge and experience should be involved in making laws.

Loser: Todd Akin

Beaten in the Missouri Senate race by incumbent Claire McAskill. Akin was abandoned by his party after he said in August that "if it’s a legitimate rape, the female body has ways to try to shut that whole thing down." Actually:

Winner: Tammy Baldwin

Narrowly defeated Republican Tommy Thompson in Wisconsin to become the US's first openly gay senator. After her victory, she said:

I am well aware that I will have the honour to be Wisconsin's first woman US senator... And I am well aware that I will be the first openly gay member of the United States Senate, but I didn't run to make history. I ran to make a difference.

Winner: Colorado and Washington (and, arguably, Mexico)

The two states voted to legalise marijuana - in Colorado it will be available to anyone over the age of 21 and regulated in a similar way to alcohol and tobacco. As the Economist reports, studies show that "Mexico’s traffickers would lose about $1.4 billion of their $2 billion revenues from marijuana" as a result of the legalisation.

Winner: Dan Hodges

The Telegraph and New Statesman pundit Dan Hodges correctly called the election for Obama before anyone else in the British press dared to (at about 2am) thus exorcising the memory of his "David Miliband has won the Labour leadership contest" call in 2010.

The following Twitter exchange sums it up pretty well:

Winner: Nate Silver

The New York Times's resident number-cruncher called every single state correctly. Via @cosentino on Twitter, here's how the actual result and Silver's predictions side by side:

His predictions might be uncanny, but that's because Silver's a probably a witch. (Although we are intrigued to know what happens to him now - does the NYT power him down and put him in a display case in the lobby until the midterms?)

Winner: Mother Jones and Buzzfeed

The magazine Mother Jones and the website Buzzfeed, in their different ways, completely rewrote the book on how to cover an election. Mother Jones's mega-scoop of the 47 per cent video, for instance, or Buzzfeed's article "Donald Trump's Kids Love Killing Animals", just for starters. As Helen wrote in the magazine a few weeks ago:

You may not have heard of Mother Jones, but if you follow American politics, then you’ll have seen the fallout from its scoop. Addressing supporters, the presidential hopeful Mitt Romney said: “There are 47 per cent who are with [Obama], who are dependent on government, who believe they are victims” and who would “vote for him no matter what”. Mother Jones’s Washington bureau chief, David Corn, found the video online and beat the Huffington Post’s Ryan Grim to track down its owner and verify its contents.

It brought more than two million visitors to the magazine’s website in the first 12 hours of the story – double the number it would normally get in a month. Not bad for a tiny, independent magazine that has been declared dead several times – particularly when it was up against the HuffPo, which has the full corporate financial power of AOL behind it.

Loser: Donald Trump

Because he does things like this, and this, and this, and this. We could go on.

Loser: Karl Rove

Got in a fight with Fox News last night after they called Ohio for Obama, calling it "premature". You can understand why he was so upset - he did pour a vast amount of money and effort into supporting Romney...

Loser: Paul Ryan

Not only did Paul Ryan not become vice-president last night, he also now has to live with the fact that this is all he will ever be remembered for (those guns should be illegal!)

Well, that, and not being any good at economics.

Loser: Fox News

Look at the quiet despair on their faces as it became clear that Obama had won:

Loser: Benjamin Netanyahu

Benjamin Netanyahu, who despite putting a brave face on it and congratulating Obama, will surely be annoyed.

Winner: Gay marriage

Maine and Maryland became the first states to approve equal marriage legislation by popular vote. This makes the east coast states the seventh and eighth states to allow same-sex couples to marry, while campaigners are hailing the vote as a turning point in attitudes towards gay people.

Loser: Climate Change

Although it got a reference in Obama's acceptance speech, until Michael Bloomberg's intervention after Hurricane Sandy, the phrase had barely passed the candidates' lips during the campaign.

Loser: The Tea Party

Democrat victories, especially in Senate races (see Elizabeth Warren and Tammy Baldwin, above) have hopefully put the final nail in the coffin of the idea that the GOP needs the Tea Party in order to be electorally successful. Fingers crossed that, after a period of soul-searching, moderate Republicans are able to reassert themselves over candidate selection processes. Although that might be a bit hopeful - the 2010 midterms didn't deliver the Tea Party landslide it was supposed to either, and it didn't seem to dent their confidence one bit...

Winner: Chris Christie

Chris Christie, the governor of New Jersey. His non-partisan and statesman-like handling of the Superstorm Sandy aftermath won him many plaudits, although his praise for Barack Obama endeared him a bit less to his own party - some outlets even went as far as to say Christie had "endorsed" the Democrat candidate. As the GOP licks its wounds, expect much speculation about whether Christie might run his own race in 2016. Especially, as Ezra Klein argues, he's definitely not too fat to be president.

Loser: Janet Daley

Telegraph columnist and blogger Janet Daley, who just at the moment when the world was coming round to the fact that Obama had pretty much got it in the bag, "got off the fence" and called it for Romney:

With hindsight, the fence might have been a safer bet, Janet.

Loser: Tom Calvocoressi

New Statesman Deputy Chief Sub-Editor Tom Calvocoressi. A tiny tiny part of him was hoping Romney might just squeak it, so he could deploy his brilliant pun-headline: "The Mormon Conquest".

Loser: Big Money

In the wake of the Citizens United ruling at the Supreme Court (remember “corporations are people”?), many liberals worried that the election would be “bought” by billionaire donors. But the savvy micro-targeting (and sheer gusto) of Obama’s money-raising machine proved them wrong.

Winner: Stephen Colbert

This isn’t the last we’ll hear about Super PACs – the “political action committees” set up to fund candidates “independently” of them – so it’s a good time to learn what they are. Comedy Central’s Stephen Colbert has been trying to edutain people about them all election, setting up his own. Its slogan is Making A Better Tomorrow, Tomorrow.

Here's a video explaining them:

And here's a picture of him in a fetching jumpsuit:

Loser: Meatloaf

There wasn't a dry eye in the house when Meatloaf joined Mitt Romney on stage. Nor an unclenched buttock:

THE END.

Caroline Crampton is assistant editor of the New Statesman. She writes a weekly podcast column.

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

Getty
Show Hide image

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?