Why do the Miliband haters carp and groan? He’s the favourite – the rest is noise

Political punditry in the UK continues to be leader-centred and personality-obsessed, but does what the commentators have to say have any effect on how we vote?

In recent years, Nate Silver has become something of a cult figure. The American statistician is “a new kind of political superstar”, according to the Observer, “the poster boy of political predictions”, in the words of British GQ, and one of Time’s “100 most influential people in the world”. In the 2008 US presidential election, Silver correctly predicted the results of 49 out of 50 states; in 2012 he got all 50.
 
In July this year, however, he left the New York Times – where his blog had accounted for a fifth of the traffic to the paper’s website in the week of the 2012 presidential election. Why? “Nate disrupted the traditional model of how to cover politics,” wrote Margaret Sullivan, the paper’s public editor, in July. “His entire probability-based way of looking at politics ran against the kind of political journalism that the Times specialises in: polling, the horse race, campaign coverage, analysis based on campaign-trail observation, and opinion writing, or ‘punditry’, as he put it, famously describing it as ‘fundamentally useless’ .”
 
You might expect me, as a political pundit, to recoil from Silver’s approach but I can’t. Consider the recent media coverage of Ed Miliband. Taking their cue from critics within the Labour Party such as the former deputy prime minister John Prescott and Miliband’s former “guru” Maurice Glasman, commentators and lobby correspondents have lined up to pronounce the Labour leader a failure, a loser and a liability. “Ed Miliband is a pale shadow of Tony Blair” (Times). “Ed Miliband must be such a comfort to David Cameron” (Daily Express). “Miliband flounders” (Daily Mail). This is political punditry at its most “useless” – shallow, superficial, speculative and, worst of all, fact-free.
 
For a start, most people don’t have a clue who Glasman or even Prescott is. The typical voter struggles to identify any politician other than the PM, the leader of the opposition, the Mayor of London and, perhaps, the Chancellor. Politicians and pundits inside the Westminster bubble refuse to recognise this inconvenient (and ego-pricking) truth. 
 
What matters is public opinion, which hasn’t budged significantly over the past three years, let alone the past three weeks. The numbers don’t lie: Labour has had a poll lead over the Tories from the moment Miliband was elected leader in September 2010, peaking at 16 points in May and September 2012. Michael Ashcroft’s extensive poll of 9,000 voters in 213 marginals in April this year showed, in the Tory peer’s own words, that “Ed Miliband’s party is ahead in all of the clusters of seats in which it will challenge sitting Tories at a general election”.
 
As Silver wrote in the London Evening Standard in April: “It’s almost certain [the Tories] would lose an election if one were held tomorrow.” Nonetheless, the Miliband haters continue to carp and complain, moan and groan.
 
Labour’s lead over the Tories just isn’t big enough, says the party’s doom-and-gloom brigade, and has often fallen below the 6-point mark. So? As YouGov’s Anthony Wells confirms, on a uniform swing and assuming the Liberal Democrats get 15 per cent of the vote, the Conservatives need a lead of 7 points to secure a Commons majority, whereas Labour needs just 2.
 
Second, the Blairites, in particular, are quick to point out that Labour may lead the Conservatives on voting intention but the party trails far behind on the economy. Again – so? The Tories led Labour by a whopping 22 points on the specific issue of “managing the economy” in April 1997. Yet we all know what happened the following month.
 
Third, Miliband’s personal approval ratings are far worse than Cameron’s, wail his critics. So? On the eve of the Tories’ 1979 landslide, voters preferred “Sunny” Jim Callaghan to the opposition leader, Margaret Thatcher, by a 19-point margin. 
 
This last point is worth considering in detail. How much do leaders, and their approval ratings, matter? Not much, say some of Britain’s leading political scientists.
 
“In parliamentary democracies, at least, voters’ evaluations of leaders have not as yet become a substitute for their evaluations of parties in deciding how to vote,” wrote John Curtice of Strathclyde University in a 2003 paper entitled “Elections as Beauty Contests: Do the Rules Matter?”. “Becoming prime minister still primarily involves persuading voters to like your political allies rather than just yourself.” 
 
Vernon Bogdanor of King’s College London agrees. “[T]he British people have tended to show a marked distrust of charismatic leaders – in peacetime at least,” he wrote in a New Statesman essay in October 2011. “Winston Churchill did not manage to win a general election until the third time of trying, in 1951, and even then the Conservatives secured fewer votes than Labour . . .”
 
Yet political punditry in the UK continues to be leader-centred and personality-obsessed. Is Miliband weak? Is Cameron strong? Can Clegg survive?
 
I have to admit, it makes life much more interesting for a columnist. Who wants to write dry pieces about psephology? Or policy? Or the state of the economy? Drawing together off-the-record criticisms of party leaders from their anonymous colleagues makes for much more readable copy – though it has little impact on elections.
 
One of the reasons the other US political journalists had it in for Silver was that he undermined their conventional wisdom that the 2012 election was “too close to call”. (Obama beat Mitt Romney by 332 votes to 206 in the electoral college.) I’m not saying it won’t be close here in Britain come 2015, but the simple fact is that Cameron’s Conservatives have an electoral mountain to climb. Miliband’s Labour Party doesn’t.
 
Everything else is noise.
 
Mehdi Hasan is a contributing writer for the New Statesman and the political director of the Huffington Post UK, where this column is crossposted
Ed Miliband. Photograph: Getty Images

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 02 September 2013 issue of the New Statesman, Syria: The west humiliated

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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?