Monday, April 06, 2020

Are We Heading For a Debt Revolt?

The Great Recession of 2008-2009 seemed a disaster for everyone but it wasn't. The lucky ones who knew how to game the catastrophe as it loomed reaped fortunes. And, in the aftermath of that fiasco, we read reports of how the richest of the rich were no longer putting their wealth to work in the economy but were accumulating their money and hiding it in tax havens that seemed to exist in every country, on every block.

All that wealth should come in handy as they move to snap up bargains in the post-pandemic wake. Wealth begets wealth in ways even governments have a hard time tracking.

But for every big winner there are legions of losers. Only this morning I heard a clip of Pierre Poilievre trying to use the pandemic to take shots at Justin Trudeau without somehow being seen exploiting the pandemic to take cheap shots at Justin Trudeau. For a second he almost seemed sincere when he said that we are going to see a great many Canadians emerge from this tragedy in deep poverty.  Not that he suggested we should reinstate wealth taxes or anything.

The fact is Pete is right. A great many of our fellow citizens were already living in precarious circumstances - two jobs, rundown apartments, living paycheque to paycheque - when this pandemic hit knocking them from the curb into the gutter. I like to think of them as Morneau's Brigade, warriors of the Gig Economy, living in the Job Churn lane. I wonder what they look forward to in the contagion aftermath? Do they see light at the end of their tunnel? Or do they just see more tunnel?

Panama Papers-type wealth was the rage before the virus. It even prompted some desultory reaction from our reluctant political caste, nothing, of course, that would really threaten these vast fortunes.  Now I think we're going to see that money charging in on horseback to establish a vulture economy with the many too impoverished to put up much resistance. Wealth before, debt after.

Author Nicholas Powers argues that the American government has but one way forward - debt relief.

The giant stimulus exposed the cruelty of the United States allowing generations of people to be crushed by debt and poverty. The student loan debt of $1.6 trillion, the medical debt of $88 billion wrecked lives; it could have been paid off. When the coronavirus pandemic subsides, we cannot go back to business as usual.

The sudden stop of the economy exposed our fragility; a few missed checks and we sink into debt. Over 3 million Americans filed for unemployment in March, and in April it could be tens of millions. We may see 37 million jobs vanish, specifically low-wage work like waitressing and manual labor.

Every day that goes by, the U.S. debt crisis deepens. The COVID-19 quarantine paralyzed industries and it could last up to a year, maybe more. Workers who lose work can’t pay bills and can’t buy goods from businesses who fire their workers, who can’t pay their bills. The downward debt spiral accelerates. A working-class collapse threatens to bring down the wealthy, and that is why Republicans and Democrats race to stop their fall. They could have done this all along. They chose not to.
...More dazzling yet, in an act of hocus pocus that would make David Copperfield proud, the U.S. Department of the Treasury gave $454 billion to the Federal Reserve, which through the alchemy of fractional reserve banking can leverage that up to $4 trillion and throw it at the economy like poker cards from a magician’s hat — conjuring vast treasure out of a “fraction” of money. And it is Republicans putting on the show. 
The historical irony is painful. Since the rise of the New Right, which was first given national exposure in Sen. Barry Goldwater’s 1964 campaign and consolidated in President Reagan’s two terms, small government was a Republican dogma. Reagan famously said, “Government is not the solution to our problem; government is the problem.” The same came from Grover Norquist, the Republican head of Americans for Tax Reform, who said of the U.S. government, “I just want to shrink it down to the size where we can drown it in the bathtub.” Troubling homicidal fantasy aside, the idea was in opposition to big government liberalism. Tellingly, the parts that were too “big” were those that helped the poor, workers, minorities, and saved the environment. Republicans always found war and tax cuts affordable. The hypocrisy did not go unnoticed. After Reagan’s vice president, George Bush, was voted out in 1992 after just one term, I remember Tupac’s 1993 song, “Keep Ya Head Up,” was a big hit. My friends and I would nod our heads and rap along with the line, “They got money for wars but can’t feed the poor.”
...Today, in the grip of the coronavirus pandemic that could kill 1.2 million of us, mostly our elderly and sick, the only practical response is a swift expansion of the welfare state, including Medicare for All and subsidized medical school. Not just one-time $1,200 payments. Not just extended unemployment benefits. Not just loans and bailouts to businesses. We face a future of more pandemics and an intensifying climate crisis. A dramatic expansion of social welfare programs is not negotiable; it is a necessity for survival.
We urgently need a Jubilee Year, a massive debt forgiveness like the one described by anthropologist David Graeber in his Debt: The First 5,000 Years.

As I wrote a couple of weeks ago, America may need to follow the example of Solon.

America and, for that matter, many countries in the developed world may need new policies vaguely akin to Solon's Seisachtheia.

Athenian society had become debt-bound. The economy was collapsing under its own weight. There were too many debtors who could not pay, many of them stripped of their lands and imprisoned or, together with their families put into slavery. There were too many creditors, merchants, who could not recover what was owed them and also lost the customers who had built their businesses that now languished in prisons or slavery. The city state was falling into decline.
Solon's reform of these injustices was later known and celebrated among Athenians as the Seisachtheia (shaking off of burdens). As with all his reforms, there is considerable scholarly debate about its real significance. Many scholars are content to accept the account given by the ancient sources, interpreting it as a cancellation of debts, while others interpret it as the abolition of a type of feudal relationship, and some prefer to explore new possibilities for interpretation. The reforms included: 
annulment of all contracts symbolised by the horoi. 
prohibition on a debtor's person being used as security for a loan, i.e., debt slavery.
release of all Athenians who had been enslaved. 
The removal of the horoi clearly provided immediate economic relief for the most oppressed group in Attica, and it also brought an immediate end to the enslavement of Athenians by their countrymen. Some Athenians had already been sold into slavery abroad and some had fled abroad to escape enslavement – Solon proudly records in verse the return of this diaspora.

I don't suggest that 21st century America could have a "shaking off of burdens" but, like ancient Athens it has a plague of debt that requires some remedy. The annual federal deficit when Trump came to power was $585 billion, 3.2% of GDP. By 2019, Trump had it up to $984 billion or 4.7% of GDP. This year it will easily break a trillion dollars. Now Trump is promising another $.85 trillion (atop the existing trillion dollar deficit) in stimulus spending. [Congress has already bumped that to $2.2 trillion and another round of bailouts is expected before long] The American commercial sector has been fueled by debt and easy money. The era of "everyday low taxes" has exacerbated this dangerous imbalance. We've been warned for years that consumer indebtedness had reached perilous levels. We have created a weakness that increases our vulnerability to even a viral epidemic.

Those who survived the Black Death prospered. Those who survived WWI and the Spanish Flu pandemic were greated with the Roaring 20s. That's not in the cards this time.


John B. said...

Seventy years after Hayek misplaced them Morneau and his colleagues have found the directions to The Road to Serfdom.

Trailblazer said...

Thanks Mound.
This is one of your most profound posts yet.
Unlike climate change, debt bites and hurts more quickly.
As we speak the Bank of England is asking those that short the UK pound to stop doing so as it will hurt everone but the specultors.
We are in danger of the one percent becoming the half percent!
With absolute wealth comes absolute power.

Did not Jeff Bezos just ask to pass the cap around to fundraise for his employees?

Where do I get my hand on a good used guilloteen?


The Disaffected Lib said...

I don't see Morneau as especially sinister, John. He's just giving effect to what must seem to him as a natural order of life. This is where I see the Liberals having departed from what their party once stood for, the welfare of the many.

The Disaffected Lib said...

Bezos conducts himself much like Trump. He sees no hypocrisy and accepts no shame.

To me, a person such as Bezos is what Theodore Roosevelt had in mind when he delivered his Square Deal speech in 1910.

"In every wise struggle for human betterment one of the main objects, and often the only object, has been to achieve in large measure equality of opportunity. In the struggle for this great end, nations rise from barbarism to civilization, and through it people press forward from one stage of enlightenment to the next. One of the chief factors in progress is the destruction of special privilege. The essence of any struggle for healthy liberty has always been, and must always be, to take from some one man or class of men the right to enjoy power, or wealth, or position, or immunity, which has not been earned by service to his or their fellows."

At many stages in the advance of humanity, this conflict between the men who possess more than they have earned and the men who have earned more than they possess is the central condition of progress. In our day it appears as the struggle of freemen to gain and hold the right of self-government as against the special interests, who twist the methods of free government into machinery for defeating the popular will. At every stage, and under all circumstances, the essence of the struggle is to equalize opportunity, destroy privilege, and give to the life and citizenship of every individual the highest possible value both to himself and to the commonwealth."

"The absence of effective State, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power. The prime need to is to change the conditions which enable these men to accumulate power which it is not for the general welfare that they should hold or exercise."

By the time Roosevelt delivered that speech he had become a conservationist and denounced big game hunting. Yet I'm sure he would have had an elephant gun or two that he might have happily turned on someone like Bezos.

BTW, I culled those TR quotes from a piece I put together in April, 2019, about Nobel laureate, Joe Stiglitz' call for a renewal of progressive capitalism. It's worth a read.

Ben Burd said...

"Did not Jeff Bezos just ask to pass the cap around to fundraise for his employees?"

Why do we even mention this bloodsucking evil bastard, except to point out that he is the personification of the problem today. The richest man in the world who refuses to pay his workers and then depends on his workers to fund themselves. Fucking disgusting, but typical!

For years I have been speculating when the "consumer society" will collapse due to the harm caused by the 1% to the consumer, well folks it is here and will not be pretty.

I have also wondered just what it would take fight back, I know from experience that people can surprise you. The most timid of workers will become Lions in a strike situation and even surprise themselves. It can happen, might even happen in Wisconsin with their vote suppressed election. If it doesn't look for total subjugation.

Just my rant for today!

rumleyfips said...

Reports say Trump has already asked Duche Bank for debt relief.