In this week’s New Statesman: The G-Zero world

Why no one wants to take charge in the new world order. PLUS: Turkey in turmoil.

Ian Bremmer: G20 to G-Zero

This is the era of “G-Zero”, a more volatile world order with a “global leadership vacuum” – and Britain is among those countries that stand to lose the most, writes Eurasia Group founder Ian Bremmer in our cover story this week.

Writing in advance of the G8 Summit on 17 and 18 June, Bremmer argues that modern bargaining forums such as the G20 have “not produced much of value” and suffer “a lack of global leadership”, arising from a “growing numbers of transnational problems” – namely Middle Eastern turmoil, power shifts in Asia, climate change, poor cross-border financial regulation and the redesign of Europe.

Our most pressing challenge now is how to reconcile a group of world powers “that does not share a common set of assumptions about the proper role of the state in an economy, or about the value of the rule of law, transparency and freedoms of speech, press and assembly. Competing values create competing interests.”

In the face of these trends, Bremmer argues, the solutions will be “diversification” and “strategic alliances” – solutions that some countries are better positioned to take advantage of than others. Bremmer says Britain will be among those countries that will be worst off in the new order, particularly if we abandon the European Union:

For some countries, making new friends, even in a G-Zero environment, is not so easy. There are three big unfolding stories in international politics and the global economy: China’s rise, Middle East turmoil and the redesign of Europe. The three countries with most to lose from these trends are, respectively, Japan, Israel and Britain . . .

If the UK eventually lands outside the EU, it will pay a heavier price than many Britons now realise. Shedding many of Europe’s rules and regulations and its Common Agricultural Policy would pay early dividends, but waving goodbye to a club whose members buy half of Britain’s exports would damage the country’s core economic strength, and dozens of bilateral trade deals would have to be renegotiated. Outside Europe, Britain would lose much of its international political clout.

 

ELSEWHERE IN THE MAGAZINE

 

Ece Temelkuran: The “generation without ideology” wakes up

The Turkish author and political commentator Ece Temelkuran writes from the heart of the Istanbul protests. She comments on the 30 May sit-in that spurred a national rebellion against the “growing authoritarianism” of Recep Tayyip Erdogan’s government, and how a younger, apolitical “generation without ideology” is coming to life:

It was never just about trees, but the accumulation of many incidents. With the world’s highest number of imprisoned journalists and thousands of political prisoners (trade unionists, politicians, activists, students, lawyers), Turkey had already been turned into an open-air prison . . .

Throughout [Erdogan’s] tenure, his rhetoric has been no different. Even some of his closest colleagues accept that Erdogan “no longer listens to anyone” . . .

Two years ago, I followed the Egyptian and Tunisian uprisings. Arab people overcame their fear and I saw how it transformed them from silent crowds to people who believed in themselves. This is what has been happening in the past week in Turkey . . .

One more important point: the generation that has taken to the streets was born after the 1980 military coup that fiercely depoliticised the Turkish public. The general who led the 1980 coup once said: “We will create a generation without ideology.” And so this generation was – until the startling events of recent days.

 

Helena Drysdale: Turkey’s Greek Orthodox minority is in a “struggle for survival” bound up with the Erdogan government’s shift away from secularism

The writer and journalist Helena Drysdale retraces the footsteps of her great-grandfather to a small island in Turkey (known to the Greeks as Halki; in Turkish “Heybeliada”), where the Greek Orthodox seminary, a Christian institution, sits at the symbolic centre of a “struggle for survival” by Turkey’s dwindling ethnic Greek population. The seminary, closed by the Turkish government in the 1970s, “remains a festering sore in relations not only between Turkey and its Rum minority, but between Turkey and the European Union and the United States”, writes Drysdale:

Turkey’s ethnic Greek population, known as the Rum, has plummeted from 1.8 million in 1912 to roughly 2,500 today. Greeks have lived here since founding the colony of Byzantium in the 7th century BC. Now, according to a 2009 report for the European Commission on Human Rights, “urgent action is needed if [the Rum community] is to survive”.

Halki Seminary, at the centre of political wrangling for four decades, symbolises that struggle for survival. It was founded in 1844 by the Ecumenical Patriarchate of Constantinople in the Eastern Orthodox Church and its alumni include some of the world’s leading churchmen. However, in 1971 the secular Turkish government shut the seminary down. Priests of the patriarchate, who by law must be Turkish citizens, now have nowhere to train. Without priests, the survival of the Orthodox Church here is threatened.

 

Laurie Penny on internet porn

In May, Mark Bridger was convicted of murdering five-year-old April Jones. The press, keen to impose an overarching narrative on his senseless crime, chose to blame internet pornography. “It’s the latest development in a handy alliance between social conservatives, anti-porn feminists and those who seek to restrict access to technology for more sinister reasons.”

We’ve been here before. While the internet is the current culprit, the arguments against explicit material are exactly the same as they were in the feminist porn wars of the 1980s. “But to say that dirty pictures are the problem in themselves, rather than a structure of violent misogyny and sexual control, is to confuse the medium with the message.”

I do not want to live in a world where the government and a select few conservative feminists get to decide what we may and may not masturbate to, and use the bodies of murdered women and children as emotional pawns in that debate.

 

Simon Kuper: The statistical revolution is coming to football

Almost exactly a decade ago, the American writer Michael Lewis published a book called Moneyball. It told the story of Billy Beane, the general manager of an unfashionable baseball team, the Oakland As, who was using new statistics to evaluate players and strategies. From this unpromising material, Lewis crafted a bestseller. Ken Mehlman, the Republican campaign manager in the US presidential election of 2004, instructed his staff to read it because he realised that it wasn’t just a sports book. Now, according to a new book – The Numbers Game, by a former semi-professional football player-turned-Cornell professor and a former baseball pitcher-turned-behavioural economist: “The datafication of life has started to infiltrate football.”

The process has already begun in the UK:

The most powerful figure in English football remains the manager and the statistical revolution has progressed fastest at clubs where the manager believes in data. Probably the leaders in this field in England today are Arsenal’s Arsène Wenger (an economics graduate and gifted mathematician), West Ham’s Sam Allardyce (not a gifted mathematician) and Manchester United’s incoming manager, David Moyes.

In March, I visited Moyes’s then club, Everton, and one of his data analysts told me, “In terms of managers, he is probably as into it [data] as any.” Moyes would often march into the analysts’ offices firing out questions: how efficient were Everton’s next opponents at scoring from crosses? What types of passes did their midfielders make? In which areas of the field did Tottenham’s superstar Gareth Bale usually receive the ball?

For managers such as Moyes, data isn’t everything. It is one tool among many. It gives you an edge and, since you could employ perhaps 30 statisticians for the £1.5m that the average player in the Premier League earns, it’s an edge you can afford. Still, as Anderson and Sally caution: “The data cannot do the manager’s job.” Interpreting data is an art more than a science.

 

Hywel Davies: Unravelling the mystery of Benjamin Britten’s death

The leading British consultant cardiologist Hywel Davies unravels the mystery of Benjamin Britten’s death. Paul Kildea’s recent biography, Benjamin Britten: a Life in the 20th Century, claims that Britten died from the long-term effects of syphilis.

At the time of publication there were, writes Davies, “very public denials of this, some of them by people who could not possibly know one way or the other”. Davies was a friend and colleague of the surgeon, Donald Ross, who operated on Britten’s heart in 1973. He has also examined medical records recently placed in the Britten-Pears library, and reveals that “during an ordinary conversation in his house in the late 1980s, Ross chose to tell me that Britten’s heart was syphilitic . . . I took him at his word, knowing that his opinion was that of a seasoned professional at the peak of his power in his field of expertise.”

In conclusion, Davies argues that “syphilis was and still is a major diagnostic possibility” and that Kildea is largely correct in his claim. “I have taken a position in this matter largely because I find that the strongest evidence we have is that of the surgeons and I do not believe their conclusions should be cast aside lightly.”

PLUS

 

Mary Robinson urges empathy with the victims of climate change

The Politics Column: Cameron has already picked his message for the next election – and cleaning up politics isn’t it, says Rafael Behr

Will Self: I refuse to join the absurd cult of Clare Balding

Kirsty Gunn: In praise of James Salter

Sherard Cowper-Coles: Our Afghan adventure was reckless folly

 

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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?