"Loongate" shows some Tories want to be insulted by Cameron

There are Conservatives who need routine evidence of treason to justify perpetual rebellion against their leader.

There is a curious paradox to the commotion over alleged remarks from within David Cameron’s inner circle that Tory activists are all “swivel-eyed loons.”  The newsworthiness of a statement is normally defined by its being surprising or unusual. The scale of a gaffe is also conditional on the celebrity of its author.

"Anonymous person says precisely what such a person might well be expected to say" is not, under normal circumstances, a front page story. Except on this occasion the vagueness and predictability are precisely the point. There is a fuss because someone in the Prime Minister’s gang – and it doesn’t really matter who because we are supposed to imagine them as a homogenous clique of braying posh boys – said just the kind of thing they would say, wouldn’t they.

Very few people outside Westminster have heard of Andrew Feldman, the object of much speculation in connection with the offending remarks. He is not identified as the speaker in the original news stories and vigorously denies saying anything along those lines. He must, then, be presumed innocent. As indeed Andrew Mitchell deserved to be when he insisted he had never called a police officer a “f**king pleb.” (Some of us said as much at the time.) He is now vindicated.

But as in the “pleb-gate” case, the charge of swivel-eyed lunacy is deadly not because someone actually uttered that formula but because so many Tories want it to have been uttered. The essential charge that the embittered anti-Cameron caucus in the party levels against their leader is that he is not a genuine Tory. His treason has a number of steps. First, he led the party away from the policy preoccupations that traditionally give it moral nourishment – Europe, crime, immigration – with the claim that election victory would be the reward. Second, he failed to uphold his side of the bargain in the 2010 general election. Third, he exploited that result, which should have been his own personal humiliation, fashioning from disappointment a weapon to further punish his party faithful – coalition with the Liberal Democrats.

Viewed from a certain angle, and filtered through sufficient layers of thwarted ambition, this begins to look like a conspiracy. Cameron, it is supposed, must actively wish the truest and bluest section of his party ill. What has been missing to complete the grievance is evidence of malice. Strategic ineptitude has a certain redeemable quality. The path of righteousness is still available to the errant leader if he is open to persuasion, harassment and threat. (As it happens, Cameron has proved himself remarkable amenable to all three.) But a leader who despises his party – who speaks of it with supercilious contempt – cannot be cajoled. He is beyond redemption and must be replaced.

The reality is that a resolute hardcore of Tories, nurtured by the truculent mood in their local associations – and I pass here no judgment on the angle or rotation of their eyes – long ago passed from disappointment with Cameron to venomous hatred. That is probably an unreasonable response to man making tricky political calculations in complex circumstances. It feels more rational to hate someone, however, if it can be plausibly claimed he hated you first.

And it is in this psychological affirmation that the potency of “loon-gate” lies. Cameron definitely didn’t say it.  Andrew Feldman insists he didn’t say it. If anyone said it at all, the circumstances were a private dinner of the kind at which incautious remarks are often made by senior politicians about their rank and file. I once heard a very prominent figure in Ukip describe his own party as full of “people who have failed at everything else in life and are feeling angry about it and want someone to blame.”  I have seen plenty of Labour shadow ministerial eyes roll in despair at the views held by their own activists.

This alienation of the high command from the rank and file is as normal in political parties as it is in any large institution. One test of leadership is how the arising tension is managed and, in critical moments, eased. Cameron is dreadful at this bit of his job. Why? Partly it it is complacency that flows from his instinctive sense of entitlement. Given his background, there is no more natural vehicle for his ambitions than the Conservative party. Combined, those elements make it inconceivable to him that his Tory credentials could be somehow inauthentic. He is right, of course. If David Cameron doesn't count as proper Tory anymore, who or what does? It is the question to which Ukip fancy themselves the answer.

But the vast majority of Tories are still loyal to their party. They don’t want to be apostates or turncoats. Yet many want to carry on being Conservatives while also rejecting the elected leader of the Conservative party. Tricky. What they need is reassurance that such a sentiment is not rebellious or disloyal; that it is, in fact, a mark of decency and fidelity. They need, in other words, a sign that true Conservatism is antithetical to Cameronism – and what better proof could they have than an expression of withering scorn for true Conservatives from within the Prime Minister’s cosy cabal. Activists and members say they are outraged by the claim that they are mentally unhinged in some way. Justifiably, they feel insulted. Many are shocked. But many also feel vindicated; few are really surprised. The political force of this affair lies not in the wounding nature of the words supposed to have come from one of Cameron's chums, but in the voracious appetite of the Conservative party to feel wounded by them.

In what way is he not an authentic Tory? (Source: Getty)

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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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?