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Paul Mason: After Brexit, even Labour's radical left may not be radical enough

The balance of forces inside the Labour Party has moved to the left. Can the leadership respond?

Whatever else they differed on, the three intellectual traditions that built the labour movement – Marxism, anarchism and social democracy – shared a vocabulary about the dynamics of social conflict. They understood that the elite’s control of money, media and the state allows it to shape those dynamics for most of the time. They were confident that the great progressive counter-power – the working class – would self-renew, even if this would sometimes require the entire movement to relearn its ABCs.

They did not panic when they were losing because, from Peterloo to Orgreave, they were losing most of the time. They understood the concept of a reactionary period, and that you have to grit your teeth and ride it out. We could do with a few people on the left who understand that now. One of the saddest aspects of mainstream Labour’s panic about the party’s poll rating is its refusal to understand the objective causes; its refusal to debate the origins of the problem within the class dynamics of Britain; its determination to reduce everything to the issue of Jeremy Corbyn, his politics and his leadership style.

The question we need to start from is not: “Would a different leader nudge the poll ratings up 3 points?” It is: “What’s going on with capitalism, and what are the elites trying to do?”

What’s going on with capitalism is fairly clear. It is ten years into a period of stagnation, mitigated by the life-support mechanism of central bank money. Since quantitative easing (QE) fuels the asset wealth of the rich but not the incomes of the vast majority, consent for the situation is draining away. Large numbers of people – far more than those who vote for xenophobic
parties – have begun to pressure political elites in the direction of national economic solutions. That’s what the Brexit vote was.

In Britain, among the super-rich and the professional political class, there were almost no takers for economic nationalism until 2014. Then the Scottish referendum presented the glimpse of an opportunity: Labour’s addiction to unionism would severely erode its support in Scotland, making a majority Labour government impossible for a generation.

It was to double down on this opportunity that David Cameron and George Osborne tried to get Labour to front up the Remain campaign. Under any other leadership, it is likely that Labour would simply have paraded around its working-class heartlands, urging an uncritical Remain vote, destroying its credibility, as in Scotland. It is to Corbyn’s credit that he did not.

However, by losing the EU referendum, the liberal wing of Conservatism signalled that it was no longer the optimum political vehicle for maintaining consent. Conservatism, ever flexible, came up with a new one: the desiccated neo-Thatcherism of Theresa May. The “hard Brexit” faction that now controls the cabinet wants to dismantle the last vestiges of social protection for workers and the poor in Britain, together with human rights law and much of business regulation. Hard Brexit means hard Thatcherism.

However, for the next two years, its supporters need to keep as quiet as possible about the social and economic consequences. This is the source of their susceptibility to tactical pressure from the opposition – as with the amendment process forced on them over Article 50, or the National Insurance U-turn. They will give ground on the detail as long as the strategic path remains unchanged. The main task of a political opposition, then, is to thwart the strategic aim: hard Brexit on a Thatcherite programme of deregulation and destruction of public services. That is the criterion by which Labour members and supporters should judge Corbyn.

There are three parts to the task: a) pursuing the softest form of Brexit, if possible remaining in the single market; b) promoting Scotland’s right to remain attached to the single market, if necessary at the cost of independence; and c) opposing the Tory austerity and privatisation programmes on the streets, in the workplace and in the courts.

Looked at this way, Labour’s problem becomes obvious. With the right-wing media and the state pledged to hard Brexit, Labour must be prepared to become an enthusiastic party of soft Brexit, socially just Brexit, anti-racist Brexit. Yet its support base is composed of groups that find it difficult to cohere around this. Members of the urban salariat, many of whom still fantasise about a second referendum or a legal challenge, will adopt the soft Brexit strategy only reluctantly. In small-town, working-class communities, with Ukip and the Tories accusing anyone who wants to be in the single market of treason, it may not be possible to bring all former Labour voters to the project of single market access, let alone membership.

Corbyn should be judged on whether he can demonstrate the leadership skills and build the networks that can pull the separate Labour movement demographics together around the single project of soft, socially just Brexit.

The shadow cabinet has learned the hard way that fighting the new problem in the old way does not work. Brexit reframes all issues around the national economic interest – and it is likely that the hard-line negotiating position of the EU27 will do so even more. Simply campaigning against cuts, poverty, inequality and poor service provision gets you nowhere as long as those running the Daily Mail and the Sun can point their patrician fingers across the Channel (or at migrants here) and say: there’s the source of the problem.

Hard though it is, the design and execution of a Brexit strategy are doable tasks for Labour. The near-impossible one is to recalibrate its relationship to Scottish independence. Substantial numbers of the left-leaning workers, students and salariat who should be Labour north of the border have switched to the SNP, pushing it further towards social democracy. Probably the only effective gesture that Corbyn could make is to federalise the Labour Party aggressively and swiftly, in a way that allows the Westminster leadership to begin building a progressive alliance with the SNP at Westminster. Given the balance of forces within Labour, that does not look likely.

However, the third main task – opposition on the streets – is in the bloodstream of the Corbyn leadership and much of the activist base around him. While many Labour MPs found better things to do on the day of the NHS demo in March, an estimated 250,000 people took part; two weeks later – and despite calls to boycott it because of the involvement of the Socialist Workers Party – 30,000 people joined the anti-racism march, again with the participation of the Labour and TUC leaderships.

The Parliamentary Labour Party needs to stop sabotaging and undermining the leadership. It needs to accept that the balance of forces inside Labour’s broad church has moved to the pews on the left of the aisle. For those who can’t accept this, it would make everyone happier in their skins if they found a different party to be in.

The leadership needs to firm up its “red lines” in the Brexit negotiations. The detail of Keir Starmer’s “six tests” scarcely matters against the need to pledge, loudly and irreversibly, that if they are not met Labour will vote down any Brexit deal in the Commons. Labour’s support for the rights of EU migrants already in Britain has been admirable and unwavering – but now it’s time for the party to have a debate and a vote on the immigration policy that it will propose as a replacement for free movement.

If all of this were done enthusiastically, the results could be, quite quickly, a rebound in Labour’s ratings to the low thirties, the return of key Brownite politicians to frontbench politics, inroads into the SNP vote in Scotland, and far less ammunition for the hostile press and TV to fire. In turn, that would make succession planning beyond Corbyn less adversarial, with all wings of the party able to think clearly about the kind of leader a social-democratic party needs in a country that is about to self-destruct, and how the different wings of Labour could work co-operatively, instead of destructively as at present.

But the crucial period for Labour will likely be winter 2018-19. Theresa May’s Brexit strategy will fail; the EU27 will call her bluff and – if not overthrown by a coup inside the Tory party – she will lead Britain off the cliff of a “no-deal Brexit”.

In that situation, Labour has to be prepared to come to power, metaphorically, as an insurgency: assailing the Tories not just on the green benches but in the courts and by mobilising on the streets. The demands would write themselves: no Brexit without substantial access to the single market and an early election to decide the issue.

By then, large numbers of British people would understand the economic, constitutional and environmental catastrophe that Theresa May has designed for them – and my only fear is that even the radical left within Labour and the unions will not be radical enough when the time comes. 

Paul Mason is the author of Why It's Kicking Off Everywhere

This article first appeared in the 30 March 2017 issue of the New Statesman, Wanted: an opposition

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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?