It’s striking how many of the big stories in the news revolve around debt:
- the European debt crisis, with its Greek, Italian, Irish, Spanish, and Icelandic subplots;
- the failure of the so-called “Super Committee” to reach an agreement, which is just the latest episode in the long-running saga of the U.S. federal budget deficit;
- the continuing not-technically-a-recession, with its roots in the debt-fueled housing bubble;
- the increasing separation of American society into a creditor class and a debtor class;
- popular anger — expressed in both Occupy Wall Street and the Tea Party — about the misdeeds of the too-big-to-fail banks and their special relationship with the government;
- new revelations about the role of the Federal Reserve in creating profits for the big banks, and the role of the SEC in helping them cover up their crimes. (See this week’s Short Notes.
Each one of these stories has its own nuances. Plunging into the details, understanding why none of them is exactly what it appears to be, can be strangely comforting. It feeds the illusion that if we can get to the bottom of one of these stories, eventually we can get to the bottom of all of them.
But we also need to get to the top of the story. At some point we need to get a bird’s eye view so that we can see how all those trees make a forest: What is up with debt, anyway? Why do all our problems, no matter how disconnected they seem initially, seem to revolve around it?
Several authors have tried to provide the birds-eye view, painting a unified if somewhat disturbing picture: This isn’t just about economics. It’s about democracy.
Haslett. One recent aerial reconnaissance was Adam Haslett’s Salon article This is Our New Normal. Haslett says we can’t get into a normal recovery because we aren’t in a normal recession. Instead,
In many countries, the fundamental political and economic bargain of postwar society is in the process of coming apart.
The West’s rapid economic recovery from World War II made that bargain work for about a quarter century. Wages could rise without hurting profits or causing unemployment. The poor could be lifted up and middle class could achieve a new level of prosperity without dragging down the rich.
But growth slowed down in the 1970s, and Haslett retells economic history since then as a series of lesser problems caused by our evasion of the larger problem: What should a slow-growth social contract look like? Basically, inflation and debt are two ways to hide lackluster growth. So we had inflation in the 70s, government budget deficits in the 80s, and multiple cycles of private-investment-bubble/debt-crisis from the 1990s on.
Such growth as we have seen in the last four decades is increasingly based on finance rather than manufacturing, and concentrated on the already rich. These opportunities are not only out of most people’s reach, but beyond their understanding.
Most people can understand what political forces are at play when a union demands higher wages and a company resists, citing foreign competition. … But what happens when a politician says we must lend billions of dollars to undercapitalized banks or indebted countries in order to provide liquidity to the financial system, and if we don’t we will enter a depression or blow up the euro? The content, let alone the truth, of such a proposition is hard for most people to assess.
The result is an across-the-board loss of faith in democracy: Big-money interests are unwilling to leave their fate in the hands of the ignorant masses, while the average citizen wants to believe that somebody somewhere understands this stuff and can manage it properly. And so
the key decisions are made without democratic consultation by financial bureaucrats working with private bankers. … Financial policy becomes more like foreign policy, conducted by an executive strong-arming a parliament or legislature under conditions of emergency.
But without democratic process, public debts start to lose their legitimacy. Why shouldn’t the People simply repudiate debts that have been thrust upon them by technocrats? And if they do, will creditors absorb the loss? Mount a coup? What? Haslett has no answer, but believes that even framing that question advances the needed discussion.
Hudson. An even-higher-altitude view comes from economist Michael Hudson’s article Debt Slavery in the current issue of Counterpunch. Hudson observes that ancient societies regularly ran into trouble when creditors gained too much power.
The general pattern went like this: During droughts and other natural disasters, small landholders would need more help that they could pay for and so would be forced to borrow on the lender’s terms. (As Adlai Stevenson put it, “A hungry man is not free.”) Eventually the lenders would end up owning the land, turning the original owners into serfs, slaves, or criminals.
Since small landowners were the core of effective ancient armies, this gradual reduction to slavery was a disaster from a king’s point-of-view. So mass cancellation of debts was a frequent feature of ancient imperial governance, and got instituted in the Torah as the Jubilee Year.
If creditors became too powerful for the king to cancel debts, the empire usually fell. That is Hudson’s explanation for the fall of Rome, which lost its ability to raise an army of native landowners and had to rely instead on foreign mercenaries, who eventually over-ran the empire.
“Creditor power and stable growth rarely have gone together,” Hudson writes.
The rise of democracy in the 1600s meant that debts could be owed by the People as a whole, rather than by individuals or kings who might be overthrown. However, eventually the ancient problem re-appears:
The tendency for debts to grow faster than the population’s ability to pay has been a basic constant throughout all recorded history. Debts mount up exponentially, absorbing the surplus and reducing much of the population to the equivalent of debt peonage.
Modern democracies don’t have jubilee years, but they achieve the same purpose by progressive taxation financing a social safety net, plus government control of central banks and regulation of banking in general. In recent years, though, the creditor class has gained enough political power that it can lower its own tax rates, cut the safety net, and deregulate. Hence the current global crisis.
When banks are permitted to be self-regulating and given veto power over government regulators, the economy is distorted to permit creditors to indulge in the speculative gambles and outright fraud that have marked the past decade.
The result is the kind of tension Haslett noted: Creditors want economic decisions taken away from elected officials and turned over to technocrats. But the bankers have lost sight of the big picture: Technocratic management causes the People to lose commitment to “their” public debt, which they will eventually repudiate, as has already happened in Argentina and Iceland.
Graeber. According to an old saying, you can’t tell a fish that it swims in water. That’s a good way to think of anthropologists: They’re fish who study the water the rest of us take for granted. David Graeber’s recent book Debt: The First 5,000 Years is an anthropologist’s take on economics. And so, mixing my animal metaphors, it is the highest-flying bird of all.
Graeber is writing this book to answer the question: Why do people have to pay their debts? It’s an almost universal moral principle, but its applications are perverse. He notes what he saw while studying the highland peoples of Madagascar: IMF-imposed austerity killed the mosquito eradication program. Predictably, malaria returned, killing thousands of poor children.
Now, few people would knowingly make the moral choice “Children should die so that Madagascar can give money to Citibank”, especially since the country’s indebtedness is all bound up in its colonial history. But once expressed as debt, the logic somehow seems obvious.
There is no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt — above all, because it makes it seem that it’s the victim who’s doing something wrong.
Banks can and have, for example, lent irrational sums of money to countries whose corrupt dictators stole it. Should the People have to repay those loans? The logic of this isn’t even good capitalism. Graeber imagines asking the Royal Bank of Scotland for a million-pound loan to bet on a horserace. Good bankers would wisely turn him down.
But, imagine there was some law that said they were guaranteed to get their money back no matter what happens, even if that meant, I don’t know, selling my daughter into slavery or harvesting my organs or something. Well, in that case, why not? Why bother waiting for someone to walk in who has a viable plan to set up a laundromat or some such?
Good capitalism, in other words, depends on foolish loans not being repaid.
Moral framing. The rest of the book is a long historical/anthropological meditation on how repaying debts came to seem like the bedrock of morality. The answer is surprisingly deep and bizarre: Our language for framing moral questions has come to be based on the metaphor of debt. Moral obligations of all sorts are expressed as what we “owe”. It’s baked into the language: ought and owe come from the same root; should comes from the German schuld, meaning debt.
Even God is pictured as maintaining a ledger of our good and bad deeds, which will be read at a Day of Reckoning — a term that comes from accounting. Afterward, some will be dragged away to an eternal debtors prison, while others will see their slates wiped clean in a massive Jubilee.
As George Lakoff teaches, “common sense” is nothing more than what is implied by the unexamined assumptions contained in our framing metaphors. Consequently, “people have to pay their debts” is common sense, even though it’s actually fairly dubious.
The net effect of Graeber’s book is to de-mystify debt, and to strip it of its undeserved moral trappings. If you’re killing children to enrich bankers, the morality of that has to stand on its own.
The hidden history of money. Graeber can’t cover debt without re-examining money, whose history has largely been hidden behind myths.
Econ 101 teaches that primitive barter economies developed money to make trade more efficient. In fact, anthropologists know that there has never been a primitive barter economy. Economies based on trade develop after money, not before. (Pre-monetary economies are like families or mafias — based on relationships of mutual obligation, not trade of goods and services.) Economists hide the history of money out of shame, because it is all bound up with slavery. It’s only a slight exaggeration to say that money developed in order to buy people.
A personal relationship is a long series of inexact exchanges of favors. Money introduces the idea that indebtedness can be precisely quantified and that the account can be settled, allowing both parties to walk away from the relationship clean. (That, Graeber explains, is why we instinctively rebel at mixing money and friendship. Settling accounts is preparation for ending the relationship.)
The true history of money shows why it has destabilized the moral structure of one traditional society after another. Money distances people from each other, and reduces everything to the status of a commodity. And so we are distanced from the consequences of our demands: I don’t want parents to starve their children or old people to go without health care — I just want a good return on my money.
Summing up. Debt and its repayment is not some technical issue to be worked out by economic experts. Ultimately, a country’s debt is only meaningful in two situations: If the People are committed to repaying it, or if the country has an undemocratic government strong enough to force repayment against the People’s will. “Technocratic” solutions start us down the second path.
And finally, what a country does with its resources is a moral choice. The morality of that choice can be hidden by the language of debt, but not forever. The sooner we see through our illusions about debt, the better.
The Weekly Sift 