The Political Psychology of Debt

The Political Psychology of Debt

This essay was inspired by the master colorist Lisa Souza and the great beauty of her handspun yarns.

America is becoming a vast, open-air debtors’ prison and the walls are going up all around us.  Unless the process is reversed, this metaphorical prison will soon enclose nearly all of us…and become as real as the bricks and stones of debtors’ prisons of centuries past.

Debtors in the Colonies and early Republic were often confined to prisons of unimaginable squalor. The basic needs of ordinary criminals, no matter how vicious, were provided for; debtors had to pay for their own food, clothing and fuel.  They could be flogged, branded, have their ears sliced off, be stripped of all their property, and assigned as indentured servants to their creditors, from the greatest to the least, until all were paid off.  In the debtor’s prison that modern America is becoming, we inmates live in physical comfort and outright luxury. Most of us live better, in fact, than 99% of the human species has ever lived and better than at least 90% of the world lives today.  But living in debt means we have  we can want while actually owning little.  Living in debt means living in fear.  If we live in fear, it is not so much of the knock on the door (the repo man does not knock) as it is of the creditor’s phone call, the dunning letter, the foreclosure, the lien.  And so we scrutinize our “credit scores” like cancer patients obsessing over their charts and as the deterioration continues, some of us take a certain grim satisfaction in:  “Identity theft?  Mine?  They can have it.”

In America, the price of comfort and luxury is the knowledge that it may be nice, but it isn’t really yours, and that someday the “not really yours” will catch up.

Owning property, especially one’s home and one’s means of livelihood, has always meant not so much wealth as independence.  And this economic independence was held to contribute to an independence of spirit and intellect that makes for responsible citizenship. Indebtedness as a way of life was presumed to corrode one’s character, whether the debts were incurred for riotous living or just for keeping alive.

 According to our national myth, Americans are supposed to be independent, which at its essence means, beholden to none and cannot be bought..

 Today, our current economic troubles notwithstanding, we yet presume that prosperity-via-indebtedness is our natural and eternal condition. As for our addiction to debt-as addicts say, “We can handle it.”  But we can’t.  And the four addictions that have made for our 21st century prosperity are rapidly becoming the four walls of our debtors’ prison.

The first wall is federal debt, now approaching $10 trillion already spent.  In 2006, when the total federal debt was $8.506 trillion, the interest alone on that federal debt was $406 billion.  Then  add in all the future “normal” deficits, plus all our “unfunded entitlements,” especially Social Security and Medicare, that will be coming due as the Baby Boomers retire.  David Walker, former Comptroller General of the United States, estimates our total fiscal hole as $53 trillion, or $440,000 per American household.  But despite that whiff of surpluses in the 1990s, the federal deficit is “structural”-we can neither grow nor tax our way out of it.  For the moment, that leaves only borrowing to cover expenses, which results in ever-mounting interest payments.  It is easy to imagine a scenario, a decade or two from now, when interest on the debt starts to become unsustainable, when we can’t take in enough money to service the debt, let alone pay it off or meet other obligations.  What then?

The choices will be as simple as they currently seem politically impossible:  cut government drastically, inflate the currency, default or collapse.  We know it.  But for the moment, we’re content to bewail what Walker calls the “birth tax”-the now $200,000 or so that each newborn American inherits as his or her share of the debt-and an ever-growing chunk of it owed to China, the once and future Middle Kingdom that we must not be so foolish as to make into a military enemy.

(A similar situation precipitated the French Revolution.  By 1789, the corrupt, cynical and moribund French government could no longer service its debts, including its debts incurred for “spreading democracy” in North America by supporting our Revolution, plus other wars.  Nor could France find any “normal” way out of the crisis.  In desperation, King Louis XVI summoned the Estates-General, a body that hadn’t met in nearly 200 years, to gin up an answer.  Once convened, these gentlemen could not confine themselves to the matter at hand and decades of pent-up grievances exploded.  Were we to call our own equivalent of the Estates-General, a new Constitutional Convention, might something similar not ensue?)     

The second wall is the trade deficit.  America has not run a trade surplus since 1975. According to the up-to-the minute ticker on the American Economic Alert website our trade deficit for 2008 through August 14th was $438.06 billion and rising.  By the end of the year, our trade deficit will almost surely be well over half a trillion dollars, plus a few hundred billion more shipped out of this country by immigrants sending money home, plus drug and other criminal profits.  A large chunk of that half trillion-plus went for goods and services Americans could have made and performed-and did, not so long ago. 

 When we run a trade deficit of this scale, we lose not just money, we also lose the investments in our own country, for our children, that we could have made with that money…and it is small comfort to know that some of that money, Arab, Chinese and Japanese money especially, goes to buy up chunks of America.   We also lose the knowledge needed to do much of the work we have exported.  Data can be stored but human skill, from the weaving of textiles to the design and building of space ships, has to be acquired, practiced and passed on.  

The third wall of our debtor’s prison is housing prices and the housing market in general.  Home ownership was once considered an integral part of the American Dream, both for the independence it conferred and as an equity “savings account.”  Both premises made sense, so long as the mortgage industry was reasonably rational and, over the long term, home values kept rising.  Neither any longer pertains.  The mortgage market, especially the “subprime” market and all that flipping around of “mortgage-backed securities,” turned housing into speculation, with predictable results.  Meanwhile, for decades, millions of Americans have accepted being “house-poor” as a way of life:  go in hock up to your eyeballs, the market will pay you back later.  But a safe mortgage is at most three times the mortgagee’s annual income and many of us do not have those safe mortgages.  Nor are they reasonably priced.  In fact, due to adjustable rate- and interest-only mortgages, as well as enormously predatory fees, many people have seen a rise in their monthly mortgage statements.  Wages, on the other hand, have generally not increased enough to offset rising housing costs, especially the wages of those who find themselves laid off, then rehired elsewhere for less than their previous income.  Nor, obviously, have wages kept up with the steep rises in oil prices and everything dependent upon oil-basically everything.  

Not so long ago, we told ourselves that endlessly rising house prices would save us.  We bragged that although our rate of cash savings was the lowest in the industrialized world, our houses were our real savings accounts.  Now we’re offered television infomercials on how to get rich fast in the foreclosure market, while the federal government spends scores of billions on assorted bail-outs of those whose rapacity and irresponsibility caused this mess.

 And then there’s consumer credit, plastic, the fourth and final wall of our national debtors’ prison.  Here I don’t mean your local grocer letting you run a tab until payday or your local garage mechanic extending emergency credit.  These are transactions between people who know and have to live with each other.  I mean corporate credit, hyper-aggressively marketed to us as a lifestyle by those who want us in debt, not a tool to be used cautiously and wisely, offered to us by bankers who want us to be able to pay in full, on time (even early)-not default.  There has never been good consumer debt qua debt (debt for investment is another issue), but modern consumer credit is designed to keep its users hooked with unconscionable fees for paying by phone, mail, and computer charges, as well as huge fees for paying late, and usurious interest rates.    Need to pay your mortgage with cash, with not enough left over for groceries or gas?  Put it on a credit card.  Need to pay for car maintenance or repair?  Put it on a credit card.  Need to buy health insurance, or pay for what your insurance didn’t cover?  Put it on credit.  (For brevity’s sake, we pass over the abhorrent racket that paying for college has become, as well as the obscenity of those “Pay Day Loan” services).   Credit card companies do not tell us how much it really costs us if we pay the minimum charge, which many of us, trapped between low wages and high non-discretionary spending, must.  They are also allowed to change our interest rates after we’ve borrowed the money.  That’s like me selling you a car for $5000 and after you’ve signed the papers and driven it off the lot, being legally permitted to call you up and say, you know that car you bought from me?  I’ve changed my mind:  It’s $10,000 now, so you owe me another $5,000 that you didn’t know about when you signed on the dotted line.  And when we can’t pay our creditors long enough, we either refinance our homes, cashing out the equity in them, or we lose them in other ways.  And the creditors get their money.

Some might argue that it’s all a matter of individual character and self-restraint, and that failure to repay is moral failure.  True, to some degree.  But there is a fundamental moral difference between stiffing the local grocer or mechanic and regarding the corporate mega-pushers of plastic as anything other than the predators that they are.  Some might also argue that the debtor’s ultimate remedy, bankruptcy, also denotes a failure of character.  But to quote Harvard Law Professor Elizabeth Warren:

“Bankruptcy is the great American story rewritten. We’re a nation of debtors. Why do you think people left Europe to come to the United States? They left because they were in debt. We like to describe it as, ‘Oh, it was about religious freedom.’ No, it was about debt. They were looking for a way to escape their debts. … It’s the way that people say: ‘I got out there; I borrowed the money; I did my best; I used that money to start a small business or to keep myself going in my job. … You rolled the dice with me. … It didn’t work. You can have most of what I own, and that’s it, though. We’ll stop there. We’ll declare the default. You write off the part of the debt I can’t pay, I’ll take my human energy … and go right back into the game again.’ That’s the whole premise behind bankruptcy. It’s about death and rebirth.”

Ulysses S. Grant failed at everything he did-failures that led to two bankruptcies-except for waging war when his country needed him most, and writing about it later.  While terminally ill with throat cancer, he wrote his memoirs to provide for his family, which had been left bankrupt and destitute by speculators.  Harry Truman’s Kansas City clothing store failed in the post-war recession of 1922 and he barely avoided bankruptcy, eventually managing to pay off his creditors.  Congress and Mark Twain came to Grant’s aid; Truman was a National Guard officer, a World War I combat vet, and county judge with real social standing.  Today, nobody dares claim that either man was lacking in the kind of character so many of us would like to see restored.

But things are different now.  In 2005, the Bankruptcy Reform Act, which the credit card industry spent over $100 million to pass, made it harder and more expensive than in America’s recent past to declare bankruptcy.  It also contains a homestead exemption that in most states is limited to $125,000 (in 2005 dollars)-if you’ve owned your home for three years and four months before you filed for bankruptcy.  File at 39 months, and the credit card companies get all your equity-and anything over $125,000 (in 2005 dollars) in equity after the 40th month.  Moreover, your bankruptcy stays on your credit report for ten years while delinquent debts stay on your credit report for only seven years after being charged off.  And no matter what-especially given the ever-growing number of the uninsured, combined with the increasing reliance of employers on credit reports to make their hiring decisions for them-once you have filed for bankruptcy, you cannot file again for another seven years.

We can no longer call the United States a liberal capitalist democracy.  We have become an oligarchy at the top and a debtocracy underneath.  An ugly word, debtocracy, for an ugly situation. But debt is what keeps the American economy going at all levels from government, to corporate, to individual, and what keeps our controlling governance afloat.  For now.  

The “free market” will not save us, mostly because the free market no longer exists.  Classical economics, that which first defined the “free market,” presumes (among other things) that the market is rational, in that buyers and sellers, producers and consumers, seek to maximize their economic well-being.  Adam Smith famously wrote of the “invisible hand” that leads each economic actor, whilst seeking his or her own good, to maximize the general welfare.  So it may be, in the claustrophobic little universe that economists inhabit, where people are rational and only economic agendas prevail and the nation is safe and the planet is never endangered.  But there is absolutely nothing rational, let alone moral, about a nation living willfully beyond its means while permitting its own productive capacity to be ravaged with the government squandering trillions and huge corporations making their money by passing the burden (at usurious interest rates,) onto people of modest means, whether at home or abroad.

Why can’t the market save us?  The answer lies in what’s known as the “fallacy of composition” (which Smith used to justify 18th century nascent capitalism).   The whole is different from the sum of its parts.  One example:  Smith’s “invisible hand.”  But there are others, not so benign.  If one person saves half his income, he grows more secure.  If everybody saves at that rate, the result is a catastrophic depression.  It is perfectly logical for one person to buy cheap foreign goods or for one corporation to offshore and outsource its jobs and requirements.  But when everybody does it, the result is the ongoing destruction of this country’s economy and therefore of the material basis of democracy and culture…and of the planet, when you realize that we haven’t stopped polluting, we’ve merely outsourced it.  In the end, you run into that old Yiddish proverb:  globalization notwithstanding, everybody gotta be someplace.

The Chinese understand. 

And therein lies the ultimate obscenity of what we’re doing.  Our indebtedness is abetted, sustained and desired by foreigners, not all of whom wish us well.  Once upon a time, we might shrug off our indebtedness by claiming that, after all, “we owed it to ourselves.” No longer.  Our indebtedness is both the doing and the property of non-Americans, and of Americans who have only been too eager to pursue the suicidal rationality of what the “free market” has become.  And let’s not pretend that an old adage applies.  “If you owe the bank ten thousand dollars, you don’t sleep at night.  If you owe the bank ten million dollars, they don’t sleep at night.”  True enough-assuming that Chinese, Arab and other foreign motivations are purely economic.  It’s a dangerous assumption.

In the end, we’ve outsourced the construction of our own prison, and both our domestic and foreign creditors want it that way.  And we’ve done this outsourcing in three related ways.

The first is immigration, both legal and illegal.  FAIR, the Federation for American Immigration Reform, estimates that in 2005, there were 13.1 million illegal immigrants here in America, plus 9.1 legal immigrants admitted between 1997 and 2006 for a total foreign-born population of 37.7 million in a nation of 300.1 million.  Throw in the children of these people and you have a situation that last prevailed around 1910, when about a third of our population was either foreign-born or the children of foreigners.  Of course, back then these people, whatever their reasons for coming, were expected to “Americanize.”  The vast majority did.

Much fuss has been made by the Right over the fact that illegal immigration is itself a crime.  But beyond entering the country illegally, the only serious crime committed by the overwhelming percentage of illegal aliens is to work desperately hard here for poverty-level wages and few, if any, benefits, under degrading conditions, with no security and little protection.  Legal immigrants are here on sufferance:  if they can’t find a job, they have to leave (assuming they can be found). They too are exploited and force domestic wages down.  And so, for that matter, do all those young foreign-born doctors and engineers.  American health care, especially in poor and rural areas, can no longer function without foreign-born doctors; we’re no longer producing enough.  As for engineers and computer people, industry trends are clear.  Why hire an older, experienced American when you can hire a young Asian who (let’s be honest) knows her stuff and works desperately hard…for half the American’s salary.  A bargain, no doubt.  But aren’t these good people, many of whom we’ve trained, desperately needed to build the economies, civil societies and political democracies of their own countries?  It’s bad enough that we exploit the millions at the bottom.  We also strip-mine the Third World of its best and brightest, to the detriment of our own.

Immigration policy is made not by the great mass of Americans, but by giant corporations, such as Microsoft or Archer Daniel Midlands, whose profits trickle down neither to the average American citizen nor to the immigrant, legal or illegal.  Poor Americans are not poor merely because of immigrants, legal or even illegal.  They’re in it just like us.  But the vast majority of us are impoverished by an immigration policy that both takes in far too many legally and refuses to limit or control the illegals.  Immigration, illegal and legal, is permitted in order to keep Americans poor in our own country.

Immigration reform is, of course, a subject that cannot be discussed without an almost automatic descent into name-calling, as well as mindless invocation of theories that no longer fit reality.  But somebody has to risk unilateral rationality.  I therefore propose the following:

 We regain control of our borders and ports of entry.  If that means militarization, so be it.  We offer immediate and unconditional amnesty and eventual citizenship to all illegal immigrants who have committed no other crimes and who within a finite period (perhaps the traditional year and one day) come forward and indicate their desire to become first legal residents and then citizens.  We deport or imprison the rest, as appropriate.  Then we pass a ten-year moratorium on all immigration, save for immediate relatives of current citizens and cases of political asylum or humanitarian relief.  Finally, we have a full, thoughtful national debate concerning a constitutional amendment to set our future immigration policy.

America, as the slogan runs, is for everybody.  Including the Americans. 

The second way we have outsourced the construction of America is through globalization.  Globalization is the condition that anything can be made anywhere and sold anywhere else, while capital moves freely and instantly from anywhere to anywhere.  Global trade has been with us for millennia:  we need only think of Spanish leather, Arabian horses, Baltic amber, Chinese silk, Egyptian linen, spices and gems from India, African gold and ivory, Mexican silver and Colombian emeralds.  Indeed, one of the reasons Europe’s Dark Ages lasted so long was the cutting off of trade after the Muslim Conquests.  There is nothing corrosive about importing what you want or need and cannot produce yourself, while paying for such imports by yourself exporting similar goods.  Nor is there anything inherently corrosive about what economists call comparative advantage:  concentrating on what you do best.  When trading partners have no agenda beyond the economic, and both are economically responsible, it makes sense.  It’s called trade.

Globalization is not trade.  We do not trade with China, for example.  China sells to us but neither buys from us no shows much interest in lowering her own barriers.  Why should she?  Even if we were to launch an effective boycott of Made in China consumer goods tomorrow, China can prosper for decades by developing its domestic markets (and in an Africa they’re aggressively buying into).  After all, the factories are already up and running-a unique kind of potential Chinese autarky, supplied by foreigners.

Of course, China’s goal is not autarky:  at least, not simple autarky.  Nor is their goal physical conquest of other nations.  Their goal is the limitless expansion of Chinese economic power, political influence and ability to compete for scarce resources such as oil.

And we have empowered them.  Lenin said that the capitalists would sell them the rope with which the communists would hang them.  He never imagined that we would borrow the money to buy the rope with which to hang ourselves.

 Something to think about on your next trip to the mall, while you search in vain for products Made in America.

Finally, we have grossly compounded the damage of our economic practices by borrowing from foreign governments and Sovereign Wealth Funds.  It is one thing to borrow from nations you never expect to go to war with, indeed count as your allies, in order to build factories, or dams, or road networks.  These are all investments, borrowed from people to whom being indebted is…safe.  This is how we financed much of our 19th century industrialization. It is something else again to borrow one’s normal operating expenses-and war-related expenditures-from governments that do not particularly wish us well, such as China, and governments that are our enemies, such as the Saudis.  If they shut off the money-as they eventually will-they can destroy us.  The United States of America can no more dig itself deeper and deeper into debt without defaulting or going bankrupt than can an individual.  With one major difference, of course-individuals don’t have the option of wrecking the currency.

Nor will cheap domestic labor save us.    For “cheap labor” no more means what it once did than do the words “capitalism” or “free trade.”  America has always made use of labor that was cheap by European standards; indeed, we were more than willing to soak up their excess population because we needed people to populate the continent and to work the factories.  But, whatever one thought of the cultural impact of immigration in centuries past, it was clearly understood that we were not engaged in creating a permanent proletariat or indentured class.  Nor did anyone think that we should.  “Cheap” made sense when coupled with “upward mobility,” whether pursued by homesteading or via trade or the labor union movement.  Our emphasis on free public education and child labor laws also guaranteed that groups could, within two to three generations, move into the American mainstream.  There was also, until recent decades, a certain respect for the skilled craftsman, the family-owned business or farm, the small-town professional.  At the very least, there was room for these people to survive and prosper. 

Now, cheap labor means that those workers are rightless and exploitable.  If it is morally abhorrent to enjoy the products of exploited labor in other lands, how much more so here.  Did we not fight a Civil War to extirpate slavery?  Have we not regarded share-cropping and tenement labor as horrific?  Did not one of our great Supreme Court justices reject the notion that the “sanctity of contract” includes the right of U.S. Steel to contract as equals with children?  Did we not, less than a century ago, embrace the union-created notion of the “family wage” and its underlying premise that those who work hard should live in decency and dignity?   

More of the same-the same things we practice and tolerate now-will not save us.  And there is something morally contemptible about simply sitting back as so many other nations have done, and accepting the inevitable catastrophe.  If America ceases to be a great power, it should be on honorable terms, as a nation that did the right thing by its citizens and the world we share with other nations.  If we are to be saved, we will have to remember that we are, indeed, American citizens, and act as such.

We have been taught to think of us as consumers, as if we are what we wear, and our minds venture little beyond the cheap TVs and electronic toys that are made to pacify us and our children.  We are also encouraged to think of ourselves as “consumers of rights” by politicians catering to an ever-expanding permanent bureaucracy that is paid to manage vast portions of our lives for us.  We live in a country where one has the right to say almost anything-so long as what we say isn’t so serious others have to think about it.  We are occasionally permitted to think of ourselves as “voters,” but according to the Census Bureau, the 2004 voting rate was 64%.

Then there are those who peg the decline of American citizenship to the decline of communal pursuits such as bowling or attending church, or belonging to the Kiwanis, reducing citizenship to our need for human companionship and community and being “of service.”  These people are willfully blind to the fact that although citizenship is not a status that can exist in a human vacuum, it is not primarily about human companionship and the politics of feeling good about yourself.  It is about the communal-the public and collective-exercise of power.  Not power in the coercive sense, although some of that there must be.  Rather, it is the power to create, to craft and to defend.

Indeed, I have come to define citizenship is nothing less than “fullness of life,” as holding and using and completely inhabiting our own bodies and lives and fully participating in all aspects of our civilization. 

In this sense, citizenship is about the totality of our lives, and the kind of world in which we live.  

As America faces the worst economic disaster in its history-worse than the Great Depression, because America’s economy was fundamentally sound then in a way it is not now-perhaps it is worth recalling something one of our greatest Presidents said.  A hundred and fifty years ago, with the nation being pushed hard towards the Civil War by the South, which was working to extend slavery and the economic foundations and results of slavery into the West, Abraham Lincoln articulated a simple and workable vision of the Republic he hoped to see America become.  “As I would not be a slave, so I would not be a master.  This expresses my idea of democracy.  Whatever differs from this, to the extent of the difference, is no democracy.”

If we would be citizens of a once again democratic nation-if we would live without either exploiting anyone, citizen or not, here in America or abroad, or being exploited-it is time to make those words our own and begin to live by them.  And it is time to demand, civilly, but also implacably, that our government rearrange this nation’s economy so that we may do so. 

If we can master this much-the commonality of wanting each of us to live more fully-we can argue about how best to achieve it.  And that debate will be part of the fullness. 

Just as the Founders intended.


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