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After Brexit, radicalism is Jeremy Corbyn's only chance of success

The battle over free movement should be a left-right issue. Labour should replace the immigration debate with class politics. 

Being on the Labour left at the moment feels a lot like how I imagine the last days of Rome. For a brief moment, we conquered the Labour party; now we are contemplating what to do with the some of the worst poll ratings in its history. In Jeremy Corbyn’s office, shadow Cabinet members stalk the corridors, pouring wine into the open mouths of passing press aides and advisers, many of whom are rushing to the exit. Most Labour MPs, having spent two years tearing down the city’s defences, cheekily shrug their shoulders. “We tried to stab him – hundreds of times”, they say. “Now let’s just wait for the end."

If the world feels like it is collapsing, that is because, on many fronts, it is. The Copeland by-election was the first time an opposition party had lost a seat in a by-election to the government since 1982. Even in London, Corbyn is, according to one poll, less popular than Paul Nuttall. Brexit is forcing Labour into such contortions that rising star Clive Lewis felt compelled to resign from the front bench. Across Europe, the new radical left is stagnating, although doing better than most social democrats, who are being annihilated. Meanwhile, the orange shadow of Donald Trump, the looming breakup of the UK and the faint prospect of war over Gibraltar give the situation a certain surreal, cinematic quality.

Demoralisation is a natural feeling for much of the left’s base. The new leadership promised to change politics, to give political expression to social movements, and to bring Labour the intellectual clarity it needed to cut through in an era of polarisation. That entire project is now on the brink – and it isn’t because of a few bad press performances. It is because, unlike much of its base, the leaders of the British left do not understand what Brexit means or how to deal with it. 

The idea that Corbyn secretly backed Leave is a myth, but it is certainly true that Labour is now failing to grasp the scale of what is happening. Brexit isn’t just part of a global right-wing populist insurgency, mirrored by Trump across the Atlantic. What the publication of the Great Repeal Bill has demonstrated is that it is also a minefield of legal and legislative measures – and with a whole new window for corporate influence on the state – that will rewrite Britain’s constitution and fatally undermine what little democracy we have.

Yet as Corbyn rose to the despatch box last week to challenge May on her Brexit strategy, having spent PMQs talking about police cuts and school funding, he did so having voted for it at every possible opportunity, and reserved his strongest objections for the government’s “complacency”. Faced with the worst political and economic crisis in living memory, Labour seems to want to talk about other, easier things. To move forward, it must bite the bullet and take sides. 

Taking sides in the Brexit debate isn’t necessarily about trying to remain in the EU. It certainly isn’t about becoming the party of the 48 per cent; that strategy may work for the SNP, but would ruin Labour. It is about drawing up a series of clear policies and fighting for them –and that ought to be the Labour leadership’s comfort zone. Brexit and Article 50 may have divided every area of the Labour movement, but the real battles – on free movement, for example – should be left-right issues. The right should be expected to pedal the idea that immigration is to blame for the housing crisis and falling living standards; the left should put across clearly articulated class politics as the alternative.

On the processes of Brexit, and on the issues that surround it, Labour suffers from a cocktail of toxic influences. On the right wing of the party, MPs openly advocate tougher immigration controls. On the left, two key intellectual influences are the Bennites and a school of thought traceable to the old Communist Party – who have in common a Eurosceptic, nationally rooted conception of the Labour left project, in many ways a reheated version of post-war social democracy. Add to that the chronic tactical conservatism of Labour as a whole and you get a party which cannot connect to either reality or its supporters on the main issue of the day.

With bold enough ideas, this could be a moment of renewal and opportunity for Labour – hitting back against nationalism, selling a forward-looking transformative politics to a mass audience. With basic assumptions about the direction of history – social progress, civil rights, limits on executive power – being eroded, there are all kinds of new allies and audiences for a form of socialism that can articulate a sharp alternative to the populist right and connect with a new layer of politicised people.

Like it or not, radicalism is still Labour’s only hope of electoral success, and the Corbyn project still carries the hopes of the left across much of the world. To save it from a spiral of demoralisation, Brexit must become a fight to be relished, not an awkward side issue.

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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?