In this week’s New Statesman: Assange, alone

Jemima Khan on how Julian Assange alienated his allies. PLUS: Who really runs Britain? We reveal the most powerful people you've never heard of.

Jemima Khan: How an Assange supporter became a sceptic

New Statesman associate editor Jemima Khan writes following the Sundance Film Festival premiere of We Steal Secrets, a WikiLeaks documentary she executive-produced and which “[Julian] Assange denounced before seeing”.  She writes:

In many ways, the film’s narrative arc mirrors my own journey with Assange, from admiration to demoralisation.

Once an Assange admirer and committed supporter, Khan even stood bail for the WikiLeaks editor-in-chief in 2010. She reveals in this exclusive essay how he lost her, and others’, support.

Read this piece in full now.

 

The Shadow Power List: Who really runs Britain?

The new “establishment” of Britain do not reside in Whitehall. They are the directors and chief executives of the companies to which much of the government’s functions have been outsourced. They are unelected, often unaccountable and in charge of ever more of our public services – shaping our lives outside the spotlight. In a special report we profile eleven people “who hold the very British brand of inconspicuous power”.

Rafael Behr writes:

Power in Britain is not contained within boundaries easily definable as “government” . . .

Where we experience the humiliation of powerlessness, this is as likely to be at the hands of a private company as a state institution. When it is a state service, there is every chance its functions have been outsourced to a private provider. ..

[Power] resides on the boards of companies no one has heard of, in quangos, in hedge funds, in networks of friends and former ministerial advisers who work for charitable bodies with opaque remits.

Featuring:

Christopher Hyman, Chief executive, Serco

The National Nuclear Laboratory, the Docklands Light Railway, immigration detention centres, the London cycle hire scheme, NHS Suffolk, the National Border Targeting Centre, air-traffic control services, waste collection for local authorities, maintenance services for ballistic missiles, government websites, prisons and a young offender institution – there is almost no branch of government that has not been penetrated by Serco, the outsourcing behemoth. And few have benefited more from the growth of this shadow state than the company’s chief executive, Christopher Hyman.

Sam Laidlaw, Chief executive, Centrica

Sam Laidlaw, of the privatised utility company Centrica (formerly British Gas), has been described as the “aristocrat” of the energy industry – and his family history indicates how the British ruling class has adapted over the course of a century, from empire to social democracy and the free market. His grandfather Hugh was an executive of the Anglo-Persian Oil Company in India, a forerunner of BP; his father, Christophor, worked his way up through BP to become deputy chairman

Joanna Shields, Chief executive, Tech City

Joanna Shields, the new chief executive of the Tech City Investment Organisation, has internet pedigree, having worked with Google, Bebo, AOL and Facebook. She may have been unable to save Bebo, one of the social networks caught in the squeeze between the dwindling Myspace and nascent Facebook, but her reputation in the tech world remains strong. Her task now is to transform Tech City into Britain’s version of Silicon Valley.

Tony Mitchell, Director, Tesco, supply chain

Tony Mitchell is the model of a Tesco company man. He started on the shop floor in 1978 and worked his way up to store manager, then eventually to head office, and now Mitchell decides what £1 in every £7 in the UK is spent on. Getting on to the shelves at Tesco can make a young company, and getting thrown off them is likely to be the death knell.

 

Rafael Behr: If Tory MPs can’t decide what kind of party they want, they’ll have to work it out in opposition

In the Politics Column, Rafael Behr writes on the split within the Conservative party, more than half of whom refused “to accept the Prime Minister’s moral lead on gay marriage” in Tuesday’s free vote. This “expresses a more profound reluctance to be led” writes Behr. Many Tories feel they have lost “any sense of ownership” within the government programme:

But complaints that Cameron is inadequately Conservative are “absurd” considering his implementation of core Conservative ideas – in short “he is the ultimate valediction of 20th-century Conservatism.”

If his party thinks that is a monstrous creation, it faces an epic task working out what it wants to be instead. It is the kind of work can only be done in opposition.

Read this piece in full now.

 

PLUS

 

Nicholas Wapshott: What David Cameron can learn from Abraham Lincoln

In the NS Essay, Nicholas Waptshop draws parallels between Lincoln’s fight to repair the union with Cameron’s modern woes over Scottish secession and the EU referendum. He goes on out outline the similarities and differences between the Prime Minister and the 16th US President.

There are poignant similarities between the conundrum that Lincoln encountered 150 years ago and the dilemma David Cameron faces today. They are both confronted with threats to the very existence of the nations they govern . . .

But while Lincoln was presented with the simple option of whether to take up arms to defend the Union or watch as his country split in two, Cam­eron has no such easy choice.

 

Laurie Penny: Ten years ago we marched against the Iraq war and I learned a lesson in betrayal

Ten years ago this month, millions of people all over the world marched against the war in Iraq- and were ignored. I was one of them...

Tony Blair’s decision to take Britain into the American’s war in Iraq was an immediate, material calamity for millions of people in the Middle East. I’m writing here, though, about the effect of that decision on the generation in the west who were children then and are adults now. For us, the sense of betrayal was life-changing.

 

In The Critics

Much of the Critics section of this week’s New Statesman is devoted to our annual history special. Featuring the historian David Cesarani on the changing face of Holocaust historiography, John Gray on the long and bloody history of political violence, and Britain’s former special representative in Afghanistan Sherard Cowper-Coles reviewing Return of a King: the Battle for Afghanistan by William Dalrymple and Games Without Rules: the Often Interrupted History of Afghanistan by Tamim Ansary.

  • Jonathan Derbyshire interviews historian Norman Stone
  • Ryan Gilbey reviews Pablo Larraín’s film No
  • Kate Mossman reviews new albums by Anaïs Mitchell and Jackie Oates
  • Thomas Calvocoressi visits “Light Show”, a new exhibition at the Hayward Gallery
  • Will Self’s Madness of Crowds.

This and much more in our “In The Critics” blog on Cultural Capital.

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

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?