In this week’s New Statesman: The intervention trap

Olivier Roy asks: "As France and Britain are lured into Africa, what is al-Qaeda planning?" PLUS: Bryan Appleyard on the entitlement of the super-rich.

Olivier Roy: The intervention trap

In our cover story this week Olivier Roy – head of the Mediterranean Programme at the European University Institute in Florence – writes in an exclusive essay on al-Qaeda in Africa. The French and British military action in Mali misunderstands the nature of terrorism and the ambitions of al-Qaeda. The complexities of al-Qaeda across Africa, and France’s multilayered reasons for intervening in the Malian conflict, leave few clear answers. He writes:

It is clear that we are still stuck in the kind of semantic and political confusion introduced by the Bush administration when it launched its “war on terror” after the 11 September 2001 attacks . . .

There is nothing new or distinctive about the activities of al-Qaeda in the Islamic Maghreb (AQIM), the Movement for Unity and Jihad in West Africa (Mujao) or any of the other small bands of international jihadists operating in the Sahel. The groups linked to al-Qaeda are nomadic, almost by definition – they are not anchored in the societies in which they operate.

The composition of the group that attacked the In Amenas gas plant in Algeria is a case in point: its members were from several different countries and of various races, and also included converts . . .

It would be absurd for the French to think that they could evict al-Qaeda from the Maghreb by occupying territory: al-Qaeda would simply regroup a little further away. And if the aim is the destruction of these groups, that is also absurd. Given the small numbers of fighters involved (a few hundred) and given that al-Qaeda recruits internationally, it would be easy for them to take flight, to cross borders or to return to London or Toronto in jeans and without beards . . .

Facts are stubborn things, as Lenin said. In spite of the moralising, the ideological posturing, the junk geopolitical strategising (the west against Islamic terrorism) which has held politicians, journalists and the military captive for a decade, though it has been continually disproved by events, the old problems will return . . .

Bryan Appleyeard: The age of entitlement.

The new super-rich have no allegiance, obligation or connection to wider society, says the award-winning journalist Bryan Appleyard in the NS Essay this week. In an impassioned piece on the “rising narcissism” and impunity of those who made their wealth in rogue finance, Appleyard argues that we have entered a new “age of entitlement”, where the super-rich live in a “mirror-lined” and “legally protected” bubble.

Perhaps it was ever thus: the rich have always been different. But that’s not true. Some­thing big, something moral, has changed . . .

“Shocking” is too soft a word to describe the crimes of the financial sector. They are almost thrilling in their creative abundance . . . loading the world economywith ever greater levels of risk and throwing millions of people out of work. And so on. All the time, they were enriching nobody but themselves. The banks and their buddies have been on a crime spree that would have glazed over the eyes of Al Capone . . .

I witnessed the cult’s apotheosis at the World Economic Forum in Davos in the early 1990s – I sat in on a meeting at which sharky young businessmen more or less said they would trample on their grandmothers for the sake of the bottom line. Viciousness had been validated. That is the enduring view in the financial sector. “There is no incentive in the financial world,” a very prominent insider told me, “to be moral . . .”

The new entitled live in a mirror-lined bubble. Also a legally protected one. I was told of a hedge-fund boss so vile that investors withdrew their money but did not sue, because other hedge funds would then refuse to do business with them. On top of that, they are protected in Britain by libel laws and a tax system that, as John Lanchester [the author of Capital] points out, not only shields our own entitled from scrutiny but also encourages equally entitled foreigners to come here . . .

“You might as well say, ‘Bond villains, come and live here,’ ” he [Lanchester] says. “Our libel laws don’t help. There are a lot of zillionaires about whom we are going to read the truth uncensored only when they are dead. It’s an astonishing situation, when we have such a proliferation of incredibly rich criminals.”

Kathleen Jamie: The spirit of Bannockburn

Next year, a referendum on independence will determine Scotland’s future, but the country’s artists have already launched their own fight for freedom. With the vote timed for the 700th anniversary of Bannockburn, the battle that “secured [Scotland’s] independence and confirmed its national identity”, the poet Kathleen Jamie – who was invited to compose words to be inscribed on the new Bannockburn memorial – writes, in a Letter from Stirling:

Bannockburn was an unlikely triumph for the Scots. The English forces were vastly superior in number, but the Scots knew their own land. The Bruce had chosen well and trained hard; he made use of the forests, bogs and waterways around him. Driven into soft ground, the English horses floundered and so did the men . . .

It’s a potent site. The weight of history, the sobriety of the monuments, the weather and the light, the slaughter, resistance, the subsequent union, devolution, turns of fate, a refusal to submit, “freedom”, whatever that means – the whole Bannockburn thing was ours in a small way to redirect.

The thing is, many Scots, myself included, have no problem distinguishing independence from nationalism, and will probably vote Yes in a referendum, not because of a Bannockburn sentiment, but in the knowledge that any Holyrood government need not necessarily be “nationalist”.

The Battle of Bannockburn was a colossal, defining event. The move towards independence, on the other hand, is a process long and slow.

PLUS:

 

Rafael Behr: The Tories are blinded by rage against the Lib Dems, while Labour’s cold fury is thawing

In the Politics Column this week, Rafael Behr says the Conservatives are “fantasising about governing beyond 2015, without the shackles of coalition”, but notes that at the same time Labour’s post-election fury towards the Liberal Democrats is thawing. Read his piece in full on our website here.

Craig Raine: On Manet’s subtle sexuality

It would be impossible to paint ‘modern life’ without touching on the touchy subject of sex. Manet’s Olympia (1863) tried the direct address – the barely defiant ‘so what?’ of the courtesan, the sack artist, the cool professional – and ran into even more trouble.

Laurie Penny: Can Rihanna videos really turn a girl into a knicker-dropping strumpet?

The language of ‘sexualisation’ as employed by professional pearl-clutchers such as the Tory MP Claire Perry, implicitly assumes that sex is always something done to a woman rather than something we do… By this measure, a young girl merely has to leaf through a copy of Cosmo or stumble upon a Rihanna video on YouTube and wham, that’s it: sexualized. Ruined forever. Nothing to be done.

In the Critics:

  • Jonathan Derbyshire reviews The Scientists: a Family Romance by Marco Roth
  • Kate Mossman reviews A Prince Among the Stones: That Business With the Rolling Stones and Other Adventures by Prince Rupert Loewenstein
  • Alexandra Harris reviews Paul Kildea’s major new biography of Benjamin Britten
  • Novelist Toby Litt reviews Tracey Thorn’s memoir, Bedsit Disco Queen
  • Ryan Gilbey is not wholly convinced by Robert Zemeckis’s new film, Flight.
  • Rachel Cooke sings the praises of Jonathan Meades’s new documentary for BBC4, The Joy of Essex
  • Will Self's Real Meals column

And much more.

Read further in our “In the Critics this Week” blog here.

All this and more in this week's New Statesman, on newsstands and online available for purchase here.

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?