“For at least five thousand years, popular movements have tended to center on struggles over debt—this was true long before capitalism even existed. There is a reason for this. Debt is the most efficient means ever created to take relations that are fundamentally based on violence and violent inequality and to make them seem right and moral to everyone concerned. When the trick no longer works, everything explodes. As it is now. Clearly, debt has shown itself to be the point of greatest weakness of the system, the point where it spirals out of anyone’s control. It also allows endless opportunities for organizing.”
David Graeber, “Hope in Common” – Znet, 5/21/09
David Graeber articulates a long-term critique of debt that incorporates both macroeconomic (government and state, especially war-related) debt and microeconomic (business and consumer, especially inequality-related) debt. Moreover, Graeber’s critique includes both pre-capitalist and capitalist aspects.
A more temporally focused consideration on debt would consider—over the past century—first, Keynesian macroeconomic “pump-priming” deficit spending policies in the quarter-century after World War II; second, neoliberal macroeconomic policies beginning in the 1970s, especially in relation to so-called “free trade” and the balance of payments problem that has made the U.S. an international debtor; and finally, increased household debt (mortgage, credit card, student) as a central microeconomic component of neoliberal globalization, which also has entailed “finance-led” capitalism, outsourcing, stagnant wages, and growing inequality.
Those of us who have been around since the New Deal, or at least since the 1950s, can be forgiven some nostalgia about the role of federal deficit spending in compensating for cyclical downturns in consumer demand during that era. Nevertheless, postwar prosperity was highly dependent on military-related deficit spending, and the growth of the hegemonic and national security state during the Cold War did not bode well in the longer run for labor unions or the larger American working class.
Popular movements in the 1960s were not only unable to successfully address economic injustice, but have been since overwhelmed by the relentless concentration of economic wealth and power during the neoliberal era, the basic policies of which were quite consciously formulated by multi-national economic elites beginning in the mid-1970s, as evidenced by the Trilateral Commission.
Thus in their 2008 paper “Consumer Debt at the Center of Finance-Led Capitalism,” Robert Guttman and Dominique Philon write:
“Financialization has been a global process initiated first in the US and UK during the late 1970s from where it spread at different paces to other major industrial countries. Deregulation (of banks), globalization and financial innovations played a major role in this global convergence process toward finance-led capitalism. France was certainly one of the European countries where changes were the most profound and rapid. … The new regime puts financial motives, instruments, and markets at the center of its growth process. … There are three inter-related forces behind this fundamental change in the modus operandi of capitalism—increased reliance on debt across the entire range of economic activities, the facilitation of such debt-financing by financial innovation, and financial globalization as the most transcendental force in the internationalization of capital.”
The military Keynesianism of the 1950s and 60s, which was also characterized by genuine investment in terms of research and infrastructure, has given way to the “consumer Keynesianism” of the past three decades, primarily in relation to the speculative natures of the dotcom bubble of the 1990s and the housing bubble of the last decade. While the earlier policy promoted both public and business investment, the more recent policy has increasingly depended on household borrowing, which neglects investment in increased productivity.
Increased household borrowing is systemically related to both stagnant wages for the bottom 80% and an increased share of private consumption (rather than pubic spending or public/private investment) as a percentage of GDP, from below 65% in 1980 to above 70% presently. Fred Moseley in the International Socialist Review summarizes this process:
“Workers were strapped with stagnant wages and were all too eager to borrow money to buy a house or a new car, and sometimes even basic necessities. Financial corporations increasingly focused on workers as their borrower-customers, especially for home mortgages. The percentage of bank lending to households increased from 30 percent in 1970 to 50 percent in 2006. The total value of home mortgages tripled between 1998 and 2006. And the ratio of household debt to disposable income increased from 60 percent in 1970 to 100 percent in 2000 to 140 percent in 2007. This was an extraordinary increase of household debt, unprecedented in U.S. history.”
Household borrowing has been not only a means of maintaining consumption in the face of stagnant wages, but of generating profits for the financial sector. Radical economist Richard Wolff asserts that “In effect, US capitalism thereby substituted rising loans for rising wages to workers. It took from them twice: first, the surplus their labor produced; and second, the interest on the surpluses lent back to them.”
While mortgage lending constitutes the vast majority of household indebtedness, the symbiotic relationship between the housing bubble and credit card debt is central, even beyond the fact that credit card debt has been recklessly securitized along with mortgage debt. As home prices increased and homeowners perceived themselves as increasingly wealthy during the last decade, market value and equity provided a “rational” basis for increased borrowing for automobiles and on credit cards. Obviously this all came crashing down in 2008.
Two additional observations help to complete the picture: First, as anyone familiar with economic inequality might predict, the bottom 90% of the population owns 19% of the wealth, but 73% of the debt. Second, renters are as a group about half as wealthy as homeowners, and are significantly more in debt relative to income, notwithstanding their lack of mortgage debt.
Thus the systemic dependence of finance-led neoliberal capitalism on consumer debt and its irresponsible promotion (and subsequent reckless securitization) by increasingly dominant financial corporations clearly debunk any meaningful role of “personal responsibility” in our current crisis—except on the part of the captains of finance. As John Bellamy Foster has stated, our recent economic expansions (and the concentrated profits that go with them) have “been bought on consumer debt.” Wolff concludes: “Finance has been grossly mismanaged by the institution of the corporation under deregulation: hence the crisis. Responding to this fact requires more than government reregulation. We need also to change the corporation in basic ways that can avoid or correct financial mismanagement.”
For the “99%”, these stark and class-driven realities, their historical context, and their material urgency all create “endless opportunities for organizing.” Whatever the practical and “realistic” responses, they might begin with the conclusion that in the current system, debt of all kinds is fundamentally onerous as a tool of class warfare.