A heavily damaged street in the eastern Syrian town of Deir Ezzor on 26 August 2013. Photo: Getty
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Laurie Penny on Syria: There are too many bodies buried on Britain’s moral high ground

This isn't about Syria. This is, for better or worse, about us - on the left and on the right.

Let’s be perfectly clear on one point: this was never about Syria. After David Cameron’s government suffered its most humiliating defeat to date, with rebel MPs from every part of the political consensus uniting to prevent Britain charging into another interventionist war in the Middle East, here's what the Chancellor had to say: "I think there will be a national soul-searching about our role in the world and whether Britain wants to play a big part in upholding the international system, be that a big open and trading nation that I'd like us to be or whether we turn our back on that...I hope this doesn't become the moment where we turn our back on the world's problems."

Not “this will mean more bloodshed.” Not “the use of chemical nerve agents as a weapon of war is utterly unacceptable.” No, what concerns George Osborne and the government he represents is what this means for Britain. How will ‘our’ refusal to join the United States in a proposed military assault on Syria with or without UN backing will look to the rest of the world. Are we still going to feel big and important? Will our exports be affected?

Somewhere in the suburbs of Syria, the bodies of the latest victims of Sarin nerve gas are only lately cooled, stiff beyond rigor mortis from inhaling a poison that causes every muscle in the body to clench up in death, suffocating the soul in its own flesh. And George Osborne is thinking about Britain’s trading prospects.

This was never about Syria. This was about us.

Much to the chagrin of the cabinet, the British public has remained doggedly against any prospect of war in Syria - over two thirds are opposed to military intervention - and for once, every scrapping faction of the commentariat has taken up that consensus. Peter Hitchens agrees with Polly Toynbee. Norman Tebbit is briefly on the same side as Caroline Lucas. Osborne and Cameron find themselves part of a dwindling neocon consensus, just them, their whipped ministerial colleagues and Assad’s former chum Tony Blair, popping up in the papers like the Ghost of Christmas Past to explain why bombing Damascus is absolutely the right thing to do.

If Cameron was following the advice of Vyacheslav von Plehve, the Russian minister who wrote in 1905 that what was needed to stem the tide of social unrest was “a short, victorious war”, he could not have been more wrong. We’ve seen where that goes. The American-led wars in Iraq and Afghanistan have not been short, and they have not been victorious. The United States still has the military muscle and auto-delusory capacity to believe itself a capable world policeman. Britain is no longer labouring under that delusion. We have spent the past five years being told that the nation is too broke to afford basic welfare provision, let alone another drawn-out campaign to protect US interests in the Gulf. Very few of us want a war; very few of us believe that a war will help the Syrian people. It turns out that the British public doesn’t always have the collective recall of a damselfly in a gale. Something about a decade of war tends to jog the memory.

The situation in Syria is bloody and frightening. In two and a half years tens of thousands of lives have been lost, hundreds of thousands of refugees have fled the country, and the war between Assad’s supporters and the disjointed forces of the Free Syrian army will not be over quickly, with or without Anglo-American intervention. The impulse, the imprecation, is that “we have to do something,” and somehow that something almost always involves cluster bombs and not, for example, sending in shedloads of aid and medical supplies, or opening our borders to refugees. That’s the sort of something that doesn’t make a satisfying thwack when we unzip it on the table of the cabinet war rooms.

For the hawkish minority, the main line of reasoning - masterfully dissected by Richard Seymour at Lenin’s Tomb today- has been that the Assad regime ‘must be punished,’ and that the British ought to be the ones doing the punishing, six of the best, trousers down. The old cliches are lifted out and polished for the mantlepiece of modern military hypocrisy: we’re a plucky little island, punching above our weight on the world stage, standing up to bullies. We sort out “the world's problems.” “Our country,” wrote Conservative MP Robert Halfon in a plea for intervention, “has over many centuries, stood tall against tyranny. Britain gave the world modern democracy and the rule of law.

Well, no, it hasn’t, and no, it didn’t. Britain did, over many centuries, impose its own version of the rule of law on hundreds of millions of individuals in the Global South, many of whom were massacred or functionally enslaved. Nor, over the decades that followed the disintegration of the British Empire - two little words that have faltered on the tongues of every Tory statesman in a fortnight of anxious warmongering - have the British been consistent in our opposition to ‘tyranny.’ We did not intervene during the Rwandan genocide. Margaret Thatcher took tea with Pinochet. The list of dictators with whom Britain has maintained cordial relations is long, and it is damning to anyone with the gall to argue that the people of Great Britain were ever cartographers of the moral high ground.

This isn't about Syria. This is, for better or worse, about us - on the left and on the right. The generation that grew up watching the war in Iraq and Afghanistan has done a lot of “soul-searching” in ten years. We have walked across the moral high-ground that our leaders mapped out for us. We have discovered that it is a graveyard. The bodies buried on the Anglo-American moral high ground are beyond number, and the flowers that grow there are dank and reek of corruption. But not this time. Not again. Not in our name.

 

Laurie Penny is a contributing editor to the New Statesman. She is the author of five books, most recently Unspeakable Things.

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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?