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I'm a Remainer - should I vote Lib Dem or Labour?

Who will provide a more effective opposition to the Brexit government?

So you've figured out that the chances of Prime Minister Jeremy Corbyn are slimmer than Peter Bone on a diet. But you're also a proud Remoaner and you're not about to let Cruella de May and her 329 Tory MPs march all over the next five years of your hopes and dreams. Which prompts a dilemma: Who are you going to vote for? Labour or Lib Dem? 

If you want the party of the 48 per cent (and you're in England or Wales - I'll consider the rest of the UK later), the Lib Dems want you. Minutes after Theresa May announced the early election, Lib Dem leader Tim Farron declared: "If you want to avoid a disastrous Hard Brexit. If you want to keep Britain in the single market. If you want a Britain that is open, tolerant and united, this is your chance. Only the Liberal Democrats can prevent a Conservative majority."

The Lib Dems have already proved they can turn a blue constituency yellow in the Richmond by-election, when Sarah Olney trounced the Tory princeling and Brexiteer Zac Goldsmith. 

But can they do it on a national scale? As my colleague Patrick has written here, the Lib Dem revival is exactly that - a recovery from the dark days of 2015, when voters turned on them and threw out many of liberalism's biggest beasts. And some of the winners of that backlash - Neil Coyle in Southwark, Daniel Zeichner in Cambridge - were Labour. So while the option for Remainers in a constituency currently represented by a Brexiteer Tory may be clear, elsewhere it is not so simple. 

If Labour did better than is sometimes remembered in 2015, it is struggling now. Most Labour MPs voted in favour of the Article 50 Bill, and shadow Chancellor John McDonnell once admitted the opposition party's ability to shape a softer Brexit deal is based on "moral pressure". It has shown itself ready to compromise on free movement. While only Kate Hoey has felt the need to re-enact Titanic on a boat with Nigel Farage, the rhetoric of some Labour MPs in private could be mistaken for Ukip. 

On the other hand, Labour MPs who have been vocal Remainers are already annoyed about the "vote Lib Dem" brigade. After all, some of them have already made sacrifices on the altar of a soft Brexit. Jo Stevens, the Labour MP for Cardiff Central, resigned from the shadow cabinet over the Article 50 vote, as did Clive Lewis, until then tipped as an heir to Corbyn. 

So what should the conscientious Remainer do? Well, the most practical way to steer the government away from a hard Brexit is to have an effective opposition. Even though Labour has ruled out a progressive alliance, the SNP, Labour, the Lib Dems, the Greens and even some liberal Tories are collaborating to block the government's most hardline measures. If you, like me, think the next Parliament will be dominated by the Leave-Remain debate, then a lot of those mini alliances will centre on Brexit. 

In our first past the post system, where the winner takes all, the first question to ask, if you feel the call of the Yellow Bird, is: am I going to split the progressive vote for the benefit of the Tories? 

Say - to quote a thousand Lib Dem leaflets - it really does look like a two-horse race, then the next question is: which individual will be more effective at scrutinising Brexit? Let's face it, if your incumbent MP is Kate Hoey, the answer is "basically anyone". If, on the other hand, your MP is Chuka Umunna, a Europhile who is deeply involved in the Brexitsceptic Open Britain, and could still yet lead the Labour party, then voting against him is as daft as quitting the single market over the colour of your passport. This goes for Tories too. Conservative critics of the government like Nicky Morgan and Ken Clarke are worth a dozen Labour MPs because they undermine their party's unity and say what many of their colleagues are thinking. You can always release your inner Lib Dem by knocking on doors elsewhere.

Finally, what about voters in Scotland, where the pro-EU SNP dominate, or Northern Ireland, which is about as simple as a Rubik's Cube? In Scotland, the fightback is likely to come from the Tories. Voters will have to decide which union they feel more deeply about - the UK or the EU. (The one remaining Labour MP, Ian Murray, for the record, is definitely in the pro-EU Labour camp)

As for Northern Ireland, Sinn Fein MPs don't take up their seats at Westminster (unluckily for Remain voters, MPs from the Democratic Unionist Party, who do, also embraced Brexit). The moderate nationalist Social Democratic and Labour party does, while the moderate Ulster Unionist Party backed Remain. However, with Northern Ireland's power-sharing in crisis, voters may understandably have more on their minds than Brexit. 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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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?