In this week’s New Statesman: The A-Z of Israel

Our definitive guide to a country of contradictions. PLUS: The New Statesman announces its centenary.

The A-Z of Israel

In this week’s issue of the magazine, we bring you everything you need to know about a country of contradictions. Next Tuesday, Israelis will go to the polls in an election crucial to peace, security and human rights in the Middle East. The world watches – but how much do we know about the country that calls itself the region’s “sole bastion of democracy”?

Our A-Z of Israel is a comprehensive look at Israeli society, politics and culture, featuring contributions from leading writers, experts and activists.

Avi Shlaim, the author, emeritus professor of international relations at Oxford and expert on the Israeli-Palestinian conflict, argues against uncritical American support for Israel and calls Barack Obama’s policy towards Israel a disappointment. Shlaim writes:

How can a small country like Israel defy almost the entire international community? Part of the answer is that Israel enjoys the virtual power of a veto on the UN Security Council. It exercises this power not directly, but through a proxy – the United States of America . . .

Israel’s friends in Washington argue that the interests of the two countries are identical . . . The occupation [of the Palestinian territories] most emphatically does not serve US interests. On the contrary, it undermines America’s position in the Middle East and beyond . . .

Since 1949, America has provided economic and military aid worth $115bn to the Jewish state. US aid continues to run to $3bn a year. The US is also Israel’s main supplier of arms and the guarantor of its “qualitative military edge” over all its adversaries . . .

The election of Barack Obama raised high hopes of a more even-handed policy . . . Obama had three confrontations with Binyamin Netanyahu to secure a freeze on settlement activity but he backed down each time . . .

As the defence minister Moshe Dayan once said to Nahum Goldmann, the veteran American Zionist leader: “Our American friends give us money, arms and advice.
We take the money, we take the arms, and we reject the advice.” “What would you do if we make the money and arms conditional on accepting our advice?” Goldmann asked. Dayan had to concede that Israel would have little choice but to follow its ally and benefactor . .

We are unlikely to see a US president any time soon who has the courage to follow Goldmann’s simple advice.

David J Goldberg – emeritus rabbi of the Liberal Jewish Synagogue in London – writes about the rise of Orthodoxy in Israeli politics and its controversial influence on public life. He compares Orthodox Jews’ “excessive influence” with the theocracy in Iran and describes the recent outrage surrounding a distinguished expert in child medicine. Goldberg writes:

[T]hanks to Israel’s unworkable system of proportional representation, this motley and diverse conglomerate, representing perhaps 10 per cent of the population . . . always holds the electoral balance . . .

Israel prides itself on being the only proper democracy in the Middle East; yet the excessive influence of religion on civil government has more in common with Iran, Egypt or Turkey than it does with western countries where separation of church from state is the norm . . .

 An incident just over a year ago became a symbol of the worsening Kulturkampf between the Orthodox minority and the secular majority. Israel’s ministry of health decided to give a prize to a professor of paediatrics, Channa Maayan. Knowing that the ultra-Orthodox acting minister and other religious figures would attend the award ceremony, Prof Maayan dressed in a long-sleeved blouse and ankle-length skirt and sat separately from her husband in the segregated women’s section. That was not enough. She was told that a male colleague would have to accept the prize on her behalf. Furious protests ensued.

Rafael Behr, the New Statesman’s political editor, profiles the Israeli prime minister, Binyamin Netanyahu, a “political heavyweight”, but one whose policies on Palestine and lurches to right have polarised world leaders:

With the most recent generation, Israeli politics has shifted aggressively to the right. Pessimism about the peace process has nurtured insecurity and corroded the liberal credentials of the state. Extreme nationalism and a paranoid, hair-trigger militarism have colonised the centre ground. That shift has tracked Netanyahu’s rise. He has followed the trend and accelerated it . . .

There is no doctrine or great project that can be associated with Bibi, nor even any great military or diplomatic achievement – just the galvanising of fear into a desperate and ruthless campaign for self-preservation which serves as a description of the man’s career, his personality and the policies he has pursued.

PLUS contributions from:

Ali Abunimah: On the dwindling support for a two-state solution,
and how to ensure equal rights for all

Yotam Ottolenghi and Sami Tamimi: On Israeli/Palestinian recipes
and why food defies ownership

Simon Sebag Montefiore: The author of Jerusalem: the Biography on Israel’s most ancient city

Rachel Shabi: On the Mizrahim – Israel’s Jews from Arab lands

Jason Cowley: On Jewish settlements on the West Bank 

Dimi Reider: On popular protest and the Israeli social justice movement

Ed Platt: On Palestinian rights and the West Bank separation wall

Uri Dromi: On the Mossad

 

ELSEWHERE IN THE MAGAZINE

 

Jason Cowley: The NS Centenary  

The New Statesman’s editor, Jason Cowley, announces that the magazine will celebrate its centenary in April this year. He recalls the publication’s esteemed history over the past 100 years and looks forward to our optimistic future. The New Statesman will be republishing the best articles from our archive in a series of special issues, as well as a book, due out this year. Cowley writes:

The New Statesman will be 100 years old on 12 April this year. [It was] founded by Beatrice and Sidney Webb with £5,000-worth of donations from friends, including £1,000 from George Bernard Shaw . . .

The first editor was Clifford Sharp, who was a drunk, a spy and, to the irritation of the Webbs, an ardent admirer of the Asquith Liberals. He was also competent, a skilled typesetter and copy editor. He hung on until 1928, when he was replaced by Charles Mostyn Lloyd, who in 1930 was succeeded by the man who became the NS’s greatest editor, Kingsley Martin . . .

Because of our ever-expanding website (which has more than one million unique visitors a month) and our availability in digital formats such as Kindle, we are arguably reaching more readers than ever before. Why, even the circulation of the old paper magazine itself is rising again, without marketing, at a time when so many print titles are dying. We’re feeling chipper.

PLUS

  • Rafael Behr: With Blairism a spend force, the new battle is between Blue and Brown Labour
  • Peter Wilby: The perils of intervention, new prospects Down Under and snow in Essex
  • Martha Gill: On Aaron Schwartz and the price of an ‘open society’
  • Laurie Penny: Most MPs want a pay rise while the country takes a cut. Why isn’t Parliament Square on fire?
  • Kevin Maguire: Charmless Gove’s school report
  • Ed Smith: The Lance Armstrong affair is about much more than one sportsman’s deceit

 

In the Critics

In the Critics section of this week’s New Statesman, Robert Skidelsky, the economic historian and biographer of Keynes, reviews The Slow Death of British Industry by Nicholas Comfort.

“In the early 1950s,” Skidelsky writes, “Britain was an industrial giant. Today, it is an industrial pygmy. The reasons for this sorry decline are various, he says. But “running through this history is a lack of continuity: government policy towards taxation and incentives continually changed, long-term aims were repeatedly sacrificed to short-term financial exigencies, projects were taken up and abandoned when they became too costly . . .”

PLUS: Olivia Laing reads How Should a Person Be? by Sheila Heti and Wild: a Journey from Lost to Found by Cheryl Strayed. In the Books Interview, Jonathan Derbyshire talks to Jared Diamond about his new book, The World Until Yesterday: What Can We Learn from Traditional Societies?. Ryan Gilbey on Quentin Tarantino’s Django Unchained, while Rachel Cooke wishes the BBC hadn’t tried to adapt P G Wodehouse’s Blandings stories.

Click here to read more in our In the Critics blog.

Purchase a copy of this week's New Statesman in newsstands today, or online at: www.newstatesman.com/subscribe

Charlotte Simmonds is a writer and blogger living in London. She was formerly an editorial assistant at the New Statesman. You can follow her on Twitter @thesmallgalleon.

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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?