From personal finance and consumer spending to ballooning national expenditures on warfare and social welfare, debt is fundamental to the dynamics of global capitalism. The contributors to this volume explore the concept of indebtedness in its various senses and from a wide range of perspectives. They observe that many views of ethics, citizenship, and governance are based on a conception of debts owed by one individual to others; that artistic and literary creativity involves the artist’s dialogue with the works of the past; and that the specter of catastrophic climate change has underscored the debt those living in the present owe to future generations.
About the Author
Peter Y. Paik is Associate Professor of Comparative Literature at the University of Wisconsin-Milwaukee. He is author of From Utopia to Apocalypse: Science Fiction and the Politics of Catastrophe and editor (with Marcus Bullock) of Aftermaths: Exile, Migration, and Diaspora Reconsidered.
Merry Wiesner-Hanks is Distinguished Professor of History at the University of Wisconsin-Milwaukee. Her books include The Renaissance and Reformation: A History in Documents, The Marvelous Hairy Girls: The Gonzales Sisters and Their Worlds, and Religious Transformations in the Early Modern World: A Brief Study with Documents.
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Ethics, the Environment, and the Economy
By Peter Y. Paik, Merry Wiesner-Hanks
Indiana University PressCopyright © 2013 Board of Regents of the University of Wisconsin System
All rights reserved.
Richard D. Wolff
Debt as an Economic and Social Issue
Across the United States, unsustainable debt helps force millions out of their homes, undermines consumption, prevents the extension of new credit, and in these ways sustains massive unemployment. Record volumes of personal bankruptcies intertwine with debt-driven collapses of banks, hedge funds, insurance companies, and other financial as well as nonfinancial enterprises. Even government debt in rich industrial economies has reached problematic levels, provoking political confrontations in the streets of Europe and elsewhere, forcing far-reaching political and economic changes. Debt is everywhere central to capitalism's current, global crisis.
Debt is thus very much on today's social agendas and nowhere more so than in the United States. Yet sober assessments of the complexities of debt and its social effects are rare, and rarer still are analyses of the role of capitalism in generating unsustainable debt. Urgent and intense ideological, economic, and political stakes are involved in how debts—and especially unsustainable debts—get resolved. After all, history offers many examples of debt contributing to the collapse of civilizations from ancient Rome during the period of slavery to feudal Europe. Might it be contributing to the decline of ours? And if so, is someone or something to blame? Can the debt "problem" be corrected or fixed, and at whose expense? Given the role of the United States in world affairs, the effects of a US debt problem extend well beyond our borders. Moreover, the position and impact of debt in the United States parallel its positions and impacts in many other countries.
First, a few general points to clear away some of the overheated rhetoric that sometimes surrounds the topic.
Debt is an economic process that occurs when two economic entities, such as individuals, businesses, or governments, are brought by circumstances to engage in a particular kind of transaction. One, the borrower, obtains objects of value—a loan—from the other, the lender. The lender agrees to the transaction with these conditions: (1) the borrower must contract to return those objects or an agreed-upon value equivalent at an agreed-upon future date, and (2) the borrower must pay a fee—"interest"—to the lender for this temporary use of those objects. These days, debts are mostly about quanta of money.
Debt (borrowing/lending) is a ubiquitous economic process in many societies, past and present. Individuals, households, clans, villages, enterprises, governments, and other social groups and institutions have engaged in a maze of debt processes with one another. Like commodity production and exchange, saving, and investment, debt is one of the processes that together constitute the economic dimension of society. A vast array of different wants, needs, perceptions, and motivations propel lenders and borrowers to agree on and enter into debt processes. And debt processes react back upon those who enter into them in complex ways that also affect all the other economic processes and thereby the society as a whole. Debt is part of the dialectic of interdependence, interaction, and the resulting ceaseless change within and among all the processes that make up societies.
Depending on the conditions in which they occur, debt processes can satisfy both lenders and borrowers; they can enable economies to share the pains of economic setbacks and the gains of economic progress. However, debt can also enrich one part of a community at the expense of another; it can, as it does today, function to reduce the level of economic activity, incomes, and well-being of social majorities. Usually debt contributes to all these outcomes at the same time and unevenly across societies.
Debts are therefore not good or bad, or, to say the same thing, they are good and bad. They have many complex effects, just as they have many complex causes. Consider the many factors weighing on the minds of borrowers and lenders worried about the costs and benefits of agreeing to a loan versus refusing it. Debts are, at least formally, voluntary acts in modern societies, but the actors face pressures and conditions that are not of their own choosing. Decisions by lenders and borrowers depend on the totality of forces affecting them, both those they are conscious of and can calculate and those that elude their consciousness or calculations.
Much as the larger social conditions and contexts shape the nature and consequences of debt, the effects of debt also shape people's thoughts, feelings, and actions. Those who feel victimized or otherwise damaged by debt will often become critical, whereas those who find debt's effects positive will more likely celebrate or at least defend it. Differences over the causes and consequences of debt can become blame and vilifications of lenders or borrowers. History echoes with comments about lenders like those made today about Goldman Sachs and with comments about borrowers like those made today about the millions of Americans currently unable to sustain their mortgage payments.
When debt is seen as one of the causes or as the chief cause of economic and social distress, tensions over finance can become acute. Social and political movements square off in struggles about whether and how to change finance. Defenders of the status quo may blame irresponsible borrowers who could not afford their loans and dishonestly hid relevant facts from lenders. Defenders may also attack government policies for forcing wisely reluctant lenders into imprudent loans; the problem then is not debt but government intervention in debt processes. Critics of the status quo will more likely blame irresponsible lenders who misled borrowers, manipulated government regulators, and disregarded the proper limits and safeguards for their financial activities. The relative political strengths of defenders and critics usually determine whether financial regulations and reorganizations will occur, how far they will go, and how long they will last.
In contemporary society, where the capitalist system prevails, the intimate connections (not to mention the interlocking directorates) between private nonfinancial enterprises and their financial counterparts have produced mainstream economics textbooks that usually stress the positive aspects of debt. Thus, for example, banks allow some individuals and enterprises freely to save money by depositing it and then to lend those deposited savings to others who make productive use of it. Borrowers from banks, having used their loans productively, pay a portion of their gains as interest to the lender while keeping the rest for themselves. Banks, in turn, share the interest by subsidizing services and sometimes paying interest to depositors. In the more simplistic textbooks, modern capitalist debt yields repeated win-win outcomes.
The more nuanced textbooks sometimes acknowledge that debt can also be negative. Borrowers can make mistaken investments with borrowed funds and so be unable to pay interest or even repay principal. Then the borrower's investment error travels across financial market connections to become the lender's loss as well. Similarly, when loans are made for purposes of consumption, borrowers' short-term consumption gains from such loans are offset in the longer term because the obligation to repay the loans with interest will cut their future consumption possibilities. This dilemma has often provoked further loans into a downward spiral that can have long-term effects of mounting social inequality between creditors and debtors and the social tensions that rise with them.
Debt in the United States
During the last thirty years, all financial and governmental entities in the United States have accumulated massive, historic increases in debt, as table 1.1 shows. The debt increases involved households, enterprises, and the state. In addition to the other economic processes that these actors engaged in—buying and selling of resources and products, hiring, taxing, and producing goods and services—they more rapidly increased their borrowing and lending. The last column shows how debt rose faster than our most common measure of total economic activity, the gross domestic product (GDP).
This massively increased indebtedness brought wealth and prosperity to some. It served others as the means to postpone the impact of stagnant wages and salaries. It allowed millions to at least temporarily enjoy lifestyles associated with the "American dream." However, it also contributed crucially to plunging the world economy into the worst economic decline and crisis since the Great Depression of the 1930s. It worsened the gaps between haves and have-nots as it deprived tens of millions of workers of their jobs and home owners of their homes. Perhaps most importantly, the prevalent policy responses to the crisis in the United States and other countries make only minimal and marginal changes to the basic conditions of debt that generated the crisis. They refuse to engage the systemic question: What is the relation between capitalism and debt? As I shall suggest at the end of this paper, the failure to face and debate that relation may represent the gravest of threats to the global economy.
Some Basic Causes of Mounting US Debts
Central to the debt story in the United States has been the relationship between wages earned by workers and the goods and services that workers produce for their employers to sell. Real wages (money wages adjusted for the prices of goods and services purchased with those wages) have stagnated in the United States since the 1970s. In contrast, productivity (output per worker) has continued to rise steadily across the same three decades. In short, employers have obtained ever more goods and services to sell per hour of their employees' effort while not having to pay those workers any more. The result has been a growing gap between the value added per worker and the value paid to workers. In Marx's terms and language, this has represented a stunning, long-term rise in the surplus appropriated per worker, and thus in what Marx called the "exploitation of labor."
The 150 years before the 1970s were different in a crucial way. During those years, while productivity rose faster than real wages, the latter rose every decade in the United States. Few if any other capitalist countries delivered so long-sustained a period of rising real wages to their working classes. This American "exceptionalism" was sustained by enduring labor shortages in the United States, which successive waves of immigration mitigated but never overcame. One result was the sense of US workers that they were somehow guaranteed a rising standard of living in exchange for the ever-harder work they performed to generate the rising productivity. Those workers embraced the American dream: for themselves, as a promise to their children, and as a measure of their own individual self-worth. They came to believe—with much encouragement from conservative ideologues—that the United States guaranteed the freedom and an equal opportunity for all to prosper sooner or later.
Imagine, then, the trauma inflicted at the end of this idyll as real wages stopped rising while productivity increases continued. That circumstance delivered ever greater wealth to employers and those who could participate directly in that growing wealth, such as stockholders, financiers, and top managers. Inequality of wealth and income grew, and the American dream became ever harder to obtain or sustain.
The end of rising real wages resulted from four major developments that became important in the 1970s. First, the computerization of almost all worksites hit its stride, an automation that sharply reduced the demands for all sorts of labor. Second, the profit-driven movement of jobs to offshore sites, where wages and taxes were lower and environmental standards weak, reduced the number of jobs available for US citizens. Third, US women began moving massively into paid employment in addition to their labors as homemakers and mothers. Fourth, new waves of immigrants, especially from Latin America, arrived. Rising supplies of labor power met reduced demands, with the predictable consequences for real wages. Employers no longer needed to raise wages to get or keep workers, as they had had to do for the previous 150 years. It was not the case that US workers became suddenly less disciplined, educated, or motivated, absolutely or relative to other nations' workforces, as has been suggested so often by popular as well as academic pundits. On Main Street and Wall Street, employers large and small, financial and otherwise, stopped raising real wages because "good business practice" as well as typical capitalist competition warranted doing what labor market conditions made possible.
In reaction, the US working class did not abandon the American dream and all it had come to symbolize. Instead they devised ways to secure rising levels of consumption despite stagnant real wages. First, more family members were sent out of households to perform more hours of paid work. The extra hours of work would compensate for the end of rising real wages per hour. Adult men took second or even third jobs, teenagers and retired persons took jobs, but most socially significant were the millions of US women who added paid work outside the household to all they already did inside. Partly those women were responding to or participating in the women's liberation movement since the 1970s by seeking equal access with men to paid jobs and careers. They did that also to raise their families' standards of consumption when their husbands' real wages stagnated. In joining the paid labor force, women both reacted and contributed to stagnant real wages.
One of the social consequences of all this extra work was the deep crisis in US capitalism today. As of today, US workers do more hours of paid labor per year than the workers in any other advanced industrial country. Our working classes are exhausted. More importantly, the work of women outside the home proved to be a costly "double shift" given their continuing roles as primary house-worker and parent. Women could no longer perform the emotional work supporting the integrity of US families as they had so long done—at least not with the time and energy they had previously devoted to such work. So the last thirty years have seen vast shifts to the point that the "dysfunctional family" has become a cultural icon, a staple of the entertainment industry. Nor did all the extra work solve the problem of rising consumption in the face of stagnant real wages. The extra paid work by household members, especially women, required new sets of clothes, additional cars, the substitution of prepared for home-cooked meals, and added psychological self-care, such as costly drugs and/or psychotherapies. The extra work, in short, yielded little in the way of net extra consumption beyond that necessitated by the extra work itself.
So the US working classes turned, in some desperation, to the only remaining individual act available to raise consumption given stagnant wages. They went on a borrowing binge of epic proportions, mortgaging their homes (the only collateral most workers have) and making increasing use of that new product of 1970s economic changes, the credit card. Driven by advertising, especially "easy credit," by the absence of any other remaining way to boost consumption, and most of all by a dogged determination not to give up on the American dream they had promised to themselves and their families, American workers borrowed more, eventually, than many could afford. The entire history of the country had brought them to that point. By 2007, they were physically exhausted, emotionally stressed by dissolving family ties, and increasingly anxious about unsupportable levels of personal debt. US economic history culminated in a major crisis with deep historic roots and causes. The severity of this crisis means it will not be a shallow, quick "cycle" or be curable by standard doses of Keynesian monetary and fiscal policy prescriptions.
Meanwhile, at the other end of the social distribution of wealth, US employers were raking in fast-rising surpluses as productivity kept climbing while real wages did not. Parts of these surpluses were paid out to shareholders as dividends and to top managers as ballooning salaries and bonuses. The latter promoted an altogether different explanation for their rising net revenues from that provided above: their companies' good fortune was the result of their own stunning entrepreneurship. A cult of the innovating entrepreneur—or, more accurately, CEO—arose around businessmen like Lee Iacocca and Jack Welch. This worked out nicely, since it could reasonably be argued that if entrepreneurship or top management caused the great new wealth, then such entrepreneurs and managers deserved corresponding rewards in the way of luxurious packages of salary, bonus, and stock options. The rich in the United States became stunningly richer, creating a new market for financial management: the provision of investment strategies for "high-net worth individuals" by "hedge funds" and other new "financial instruments."
Excerpted from Debt by Peter Y. Paik, Merry Wiesner-Hanks. Copyright © 2013 Board of Regents of the University of Wisconsin System. Excerpted by permission of Indiana University Press.
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Table of Contents
Introduction Peter Y. Paik
1. Debt Richard D. Wolff
2. "I Consider It Un-American Not to Have a Mortgage": Immigrant Homeownership in Chicago Elaine Lewinnek
3. Demonizing Debt, Naturalizing Finance Mary Poovey
4. On Debt Michael Allen Gillespie
5. The Growth Imperative: Prosperity or Poverty Joel Magnuson
6. Democracy’s Debt: Capitalism and Cultural Revolution Stephen L. Gardner
7. Is Debt the New Karma? Why America Finally Fell Apart Morris Berman
8. Measures of Time: Exploring Debt, Imagination, and Real Nature Julianne Lutz Warren
9. The Time of Living Dead Species: Extinction Debt and Futurity in Madagascar Genese Marie Sodikoff
10. Unintended Consequences and the Epistemology of Fraud in Dickens and Hayek Eleanor Courtemanche
11. The Resurrection of an Economic God: Keynes Becomes Postmodern Michael Tratner
12. China and the United States: The Bonds of Debt Donald D. Hester
13. Debt’s Moral Kennan Ferguson
14. Debt, Theft, Permaculture: Justice and Ecological Scale Gerry Canavan
What People are Saying About This
A very timely volume, exploring the focal issue of our times through a variety of approaches, including philosophical, political, anthropological and literary. . . . By linking economics and the environment, the volume is a serious attempt to reformulate the significant narrative of our times and its historical emergence, leaving behind so many other issues that were purely a matter of intellectual fashion: this volume tells us of the predicament we have to get to grips with.
Philosophically broad and deep at the same time. . . . [I]t's high time we rethought what we mean when we talk about debt. This is for the simple reason that the warm fuzzy ignorance enforced by neoliberalism has contributed very significantly to the current ecological emergency, while on the other hand monetarism is now eating the societies that spawned it, a classic case of autoimmunity. That the editors think these two facts together is really, really good. . . . [T]he most enjoyable collection of essays I've read in a while.