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For all the uproar among Labour MPs, Jeremy Corbyn is going nowhere

The Labour leader’s weakness among MPs is more than counterbalanced by his strength among members.

The evening of 12 October 2015 will live long in the memory of Labour MPs. All sides still speak with shock about the venomous exchanges that took place at Jeremy Corbyn’s second meeting with the parliamentary party. Veteran backbenchers described it as the most fractious gathering in 30 years. “A total fucking shambles,” was the verdict of the former cabinet minister Ben Bradshaw as he left.

Relations between Corbyn and his MPs were destined to be lukewarm at best. As few as 14 of them voted for him in the leadership election. But after an even-tempered conference in Brighton, it was hoped that the underlying tensions could be contained. A succession of events – Corbyn’s failure to be inducted into the Privy Council, the creation of a group called Momentum, the shadow chancellor John McDonnell’s reversal of support for the Conservatives’ so-called fiscal charter – brought them into the open.

MPs are prepared to accept political differences but are less tolerant of what they regard as the leader’s failure to fulfil the basic duties of leadership. Even allies despair at the confusion that has often characterised his opening weeks. “They’re not managing the party, they’re not managing the media,” one told me.

There was anger and surprise when McDonnell, without a meeting of either MPs or the shadow cabinet, announced that Labour would no longer support George Osborne’s fiscal charter. MPs were left asking why an avowedly anti-austerity leadership had backed the measure to begin with.

Few were satisfied with McDonnell’s explanation that global economic conditions and a visit to the now-closed Redcar steel plant had persuaded him to reverse his position. Rather, they suggest that he was unaware that the charter mandated an absolute budget surplus, instead of merely a current surplus (a claim he denied). Others say he failed to realise that, as a statutory instrument, the charter could not be amended to allow borrowing for investment.

If few MPs defend Corbyn’s leadership with confidence, even fewer align themselves with his most trenchant critics. The view of most is that Ian Austin, who told Corbyn to start acting like the leader of the opposition, rather than a “student union president”, and John Mann, who raged over the lack of policy direction, overreached themselves. “Once basic civility is abandoned in an organisation it’s a free-for-all,” a shadow minister said. Corbyn’s parliamentary allies are appealing for patience. Clive Lewis, the newly elected MP for Norwich South, whom some speak of as a future left-wing leadership candidate, told me: “There are going to be teething problems. The leader’s office is still being set up; John McDonnell changed his position from conference two weeks ago. I get all of that, but I don’t think the way that some people in that room behaved was warranted or justified. The way that Jeremy and John sat there quite stoically and respectfully, and took it, says a lot about them.”

The creation of Momentum is the cause of much of the unrest among MPs. The new group describes itself as a “grass-roots movement”, set up to harness the energy of Corbyn’s leadership campaign. But MPs, who were not briefed in advance of its launch on 8 October, fear it will become a vehicle for the deselection of sceptics.

Momentum's supporters cannot fully rebut this charge. Forthcoming boundary changes will force selection contests in some seats and activists can already initiate “trigger ballots” against incumbents. But Corbynites are seeking to reassure their colleagues. Katy Clark, one of Momentum’s six directors, told me: “The reality is, if you’re a good constituency MP, constituency Labour parties recognise that. I would say to anybody who’s worried about new people coming into the Labour Party: embrace it, work with the new members, engage them.”

The individual spoken of most darkly by MPs is Jon Lansman. As a veteran of the Bennite Campaign for Labour Party Democracy, Lansman, another director of Momentum, is an unashamed advocate of mandatory reselection. “When there are selections of an MP, I would like to see MPs who reflect the values of members of the party,” he said recently. “The fact is that Liz Kendall got 4 per cent of the votes in the leadership contest.”

Even left-wingers have been disturbed by his remarks. “Jon Lansman needs to wind his neck in and get back in his box. He’s doing a lot of damage,” a pro-Corbyn MP told me.

Frank Field, the chair of the Commons work and pensions select committee, told me that any MPs “picked off” through deselection should “cause a by-election immediately and stand as independent Labour candidates”. He said they “would probably win” and that “a whole pile” of colleagues would campaign for them.

All sides have identified next May, the month of London mayoral, Scottish, Welsh and 126 English local elections, as a defining early test of Corbyn’s leadership. Should Labour fall below expectations, he will come under intense pressure. Yet his weakness among MPs is more than counterbalanced by his strength among members. The party has nearly doubled in size since the general election, with 370,658 full members. To adapt Stalin on the pope: how many divisions do the anti-Corbynites have?

Many agree with the view of Ken Livingstone, who told me: “If MPs trigger another leadership ballot, Jeremy will be elected by an even bigger margin.” He added that the rules should be changed to allow anyone to stand for the leadership if they are “nominated and seconded by two MPs”, a move that would guarantee left-wing candidates a place in future races. But as an increasing number of Corbyn’s opponents acknowledge, no one should assume that there will soon be a vacancy.

George Eaton is political editor of the New Statesman.

This article first appeared in the 14 October 2015 issue of the New Statesman, The Corbyn supremacy

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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?