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.