The death of a "freeloader": When will we accept the results of austerity?

As an eighteen year old dies trying to flee a ticket inspector in Athens, police in Britain boast of apprehending a mother shoplifting to feed her two children. All across Europe, people are struggling to survive.

“Let’s not get used to death” reads a poster you see on walls around Athens. It’s a simple message: we should never stop being shocked by the death and suffering caused by the choices of European leaders and the Greek government. From suicides to “accidents”, the list of casualties has names added to it daily. From Dimitris Christoulas, the 77-year-old who, in April last year, took his own life in Syntagma square, to Babakar Diaye, the 39-year-old man from Senegal who fell on the train tracks from a great height and died after being chased by the municipal police in downtown Athens, the end result is always the same: loss of human lives.

But sometimes the going gets too much. Sometimes the morning news reads like a page out of Les Misérables. Last night, an 18-year-old died in the streets of Athens. Caught without a ticket on a trolley bus, he tried to escape the inspector who had just stepped on board by pushing the emergency button and jumping out of the door. He lost his balance and hit his head on the curb. After being taken to the hospital, the doctors pronounced him dead.

The scenes described by an eyewitness make the case sound truly appalling. He speaks of how the boy was trying to explain that both he and his parents were unemployed, and that he simply couldn’t afford the ticket or the fine. He speaks of the inspector physically assaulting him and ripping his shirt, and the bus driver joining in before the victim made a desperate attempt to escape. And he speaks of shocking scenes where the other passengers almost mobbed the inspector, shouting at him: “you just took a kid's life for one euro”.

More shocking is the reaction seen by some using Greek social media - commentators, authors, politicians. “The inspector was only doing his job,” they say. “It’s not his fault if a freeloader decided to jump off the bus”. This was the death of a “freeloader”. Not of an unemployed kid with no future, but of a guy who simply didn’t feel like paying his fare. This mirrors the attitude some government officials have shown in the past, such as the newly appointed Minister of Health, Adonis Georgiadis, who took up the post in December last year. “Those that cannot adapt, die,” he has said.

In a tragic parallel that defies borders, almost at the same time as the incident in Greece hit the news, the Cheetham & Crumpsall (Manchester) police station account tweeted:

I don’t know the specifics of the case, but the tone is what gets me. The seemingly unconnected fact that she was trying to steal baby food with two kids in her arms. Just as in the case of the 18-year-old, the subject is disconnected from the cause. Poverty and the inability to pay for transportation or food, does not get in the way of the law. The haves are not supposed to empathise with the have-nots. So the list of victims gets bigger.

In Britain, the criminalisation of squatting cost lives last winter. Cheap housing is non-existent in London, and unused properties are boarded up to keep unwanted no-goods out, while landlords plot how to squeeze every penny out of the poor. Come next winter, train fares are expected to rise by more than four per cent, making commuting work even harder for those displaced to the suburbs. This same thing happened in Greece, making job-seeking impossible for many, even if there were jobs to be had in the nation's ruined job market. What will it come to in Britain?

It's farcical. The inequalities that triggered the Arab spring - whose unravelling we are witnessing today in Egypt - are being repeated in austerity Europe. The social fabric, the welfare state that held it together, is being torn down. If you become unemployed, the chances of you getting back to work get slimmer and slimmer if you don’t have some sort of back-up. In places like Greece, Spain, Portugal and now Britain, this a new, extreme reality. In this new reality, we could all end up being cast as “freeloaders”. And our deaths, be they the result of cold, persecution or despair, will be labelled as a “failure to adapt”.

A homeless man sleeps on a vent outside a closed metro station in the centre of Athens. Photograph: Getty Images.

Yiannis Baboulias is a Greek investigative journalist. His work on politics, economics and Greece, appears in the New Statesman, Vice UK and others.

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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?