Death to Debt Culture!

Transcribed from the 3 December 2016 episode of This is Hell! Radio (Chicago) and printed with permission. Edited for space and readability. Listen to the whole interview:

The ideology of debt as shame has been very effective. Creditors have relied on that ideology to convince people to repay debts even when those debts are exploitative or impossible from the beginning. So breaking the assumption that we have a moral obligation to repay is the site of a lot of possibility.

Chuck Mertz: The economic crisis of 2007-2008 revealed capitalism for what it is: an illusion. And now that the illusion has been revealed, shaking our faith in the system, it’s time to understand our relationship with debt, and a way out of debt. Permanently.

Here to go deep into debt with us, writer Annie McClanahan is author of Dead Pledges: Debt, Crisis, and Twenty-first Century Culture. Welcome to This is Hell!, Annie.

Annie McClanahan: Hi Chuck, thanks for having me.

CM: Thank you for being on our show.

You write, “The name for a contract on a real estate loan comes from the French mort gage, which means “dead pledge.” From this surprising etymology we might exhume any number of meaningful lessons about the terrifying nature of debt, the strange ontology of property, the uncanniness of ownership, the implicit threat at the heart of the credit contract; casting credit certainty into doubt, reckoning with the problems of unpayable debts, and revealing the hidden violence of the credit economy. Credit crisis culture reminds us that debt is a matter of life and death, not just for individual borrowers, but also for the economy as a whole.”

If debt is a matter of life and death, then why should we put its certainty into doubt? Don’t we risk tragedy and self-inflicted destruction by casting any doubt on the certainty and sanctity of debt? Isn’t questioning the sanctity of debt dangerous?

AM: That’s a great question, thanks. It’s a matter of life and death largely because we are increasingly paying for the necessities of life—housing, healthcare, food, childcare, education—with debt in ways that we weren’t a few decades ago. To the extent that it is the basis of our ability to survive in the contemporary economy, we can’t help but throw it into uncertainty, because the system we have is clearly not working.

It’s been a way to compensate for wage stagnation, but what happened in 2007-2008 reveals that this way of compensating for wage stagnation simply won’t work anymore, and what we have to do in that context is think about other ways to make people’s lives livable. Increased wages, universal basic income, whatever it is besides debt. Because it’s not working as it is.

CM: How important, then, is debt—or maybe more precisely, credit—in the quality of life that we now enjoy? That is, how much would we suffer, and how much would we have to sacrifice if we didn’t have access to debt through credit?

AM: For a lot of working and middle class people, it is the only way that they are able to continue to survive, given the stagnation of wages over the last few decades. I think that’s true for the economy as a whole as well. The economy depends on the credit relationships that allow us to continue to purchase consumer goods even when our wages are stagnating. The economy depends on the ability to defer payment.

Corporations depend on the ability to defer payment into the future. But they depend on that payment eventually being made. One of the ways to start thinking about how to resist capitalism is to think about how to refuse to make those payments. Because that deferral has to come to an end at some point, and finding a way, collectively, to refuse to allow that debt to be paid, is probably the only way out of capitalism that we have at the moment.

CM: How much is debt, and greater access to credit, the cause of the boom-and-bust, bubble-bursting, precarious, unstable economic era we are living in (dating back all the way to the NASDAQ bubble of the 1990s, if not earlier)?

AM: It’s become totally central. And that’s a historical shift. It’s one of the shifts that the book is very much about. Consumer credit used to be at the margins of the consumer economy. It used to be what allowed people to purchase larger luxury goods (automobiles being the best example, but home appliances, too), and it used to be a way to smooth consumption over the course of a borrower’s lifetime. You might have ups and downs a little bit in your income, but you could still have basically the same quality of life by using credit and debt in those small ways.

And starting in the late 1970s and early 1980s, that really changed. One of the things that happened was that consumers increasingly did not make enough income to pay for the basic necessities of life. They did not make enough income to maintain their standard of living. The other thing that happened was manufacturing was starting to stall and profit rates were starting to drop on industrial production, so capitalists were looking for new domains of investment. And the one that they found was debt, essentially. That’s where we had the creation of increasingly complicated debt securities, with speculative financial instruments based on things like mortgage payments or credit card payments. That solved, for a period, these two vectors of potential crisis in capitalism: inadequate opportunities for investment on the capitalist side, and inadequate income on the workers’ side.

So debt became increasingly important. It was central to the expansion of the dot-com bubble, and even more central to the bubble of the 21st century, the housing bubble that started some time after 2001 or thereabouts, where incidentally the federal government was increasingly putting policies into place around the financing of home ownership that encouraged speculative capital to enter these markets, encouraged people to get larger and larger mortgages, and encouraged the creation of subprime lending (which was obviously a huge part of the crisis of 2008).

So it’s gone from being at the margins of the economy to being at the dead center of the US economy in the last three or four decades.

CM: Is this debt the price we must pay in the US for continued economic growth?

AM: In the economy as it functions today, yes. But that’s not the only option. And it’s also not working particularly well. The US economy has not picked up in growth in the last five years since the end of the official recession. There are a lot of economists now talking about the possibility that we’re in a permanently stagnant state. I don’t think it’s going to continue to work as it did in those decades—primarily because it’s become ever more obvious to borrowers. I talk about this particularly in the context of student loans, and in the context of the younger people who I teach and work with at the university. I think it’s become increasingly obvious to those borrowers how this system works, and that they no longer have the same moral obligation to repay.

That sense of moral obligation was built into the ideology and culture of debt almost from the beginning, well before capitalism. The word debt comes from words like sin and shame. That’s why, for instance, in the Christian lord’s prayer we have “forgive us our debts,” where debt is a metaphor for sin; in the German it comes from the world Schuld, for shame, guilt. But those kinds of ideologies around debt as a moral obligation are really fading, particularly among young people who really don’t know a world where they’re not basically born into an impossible amount of debt.

The federal student loan program was built on the assumption that rising education levels would correspond to rising incomes and rising employment rates, and that is less true today than ever before. So we’re really on the cusp of this bubble bursting. The common sense that education is an investment in your future that you have to make is no longer true.

CM: You “offer a history and an aesthetics of contemporary indebtedness as well as an account of the theoretical and political consequences of debt, how it affects our ideas of personhood and moral character,” which you were just discussing when it comes to shame. But are there political consequences of debt, or are there impacts that debt has on our ideas of personhood and moral character that we do not recognize as being connected to debt? Do we have issues that we’re not willing to admit debt has caused?

AM: Absolutely. Debt has always been connected to this sense of shame, which has worked really well for creditors. It is an incredibly effective way to frame it; it is what compels people to continue making payments on a house, for instance, even though they are “under water” on it (when making payments will never get them out of the situation that they are in). Creditors have relied on that ideology to convince people to repay debts even when those debts are exploitative or when (as in the case of subprime loans) the person was put into a situation which was impossible from the beginning—they were never going to be able to pay that debt off, and the creditors knew that. That ideology has been very effective, so breaking the assumption that we have a moral obligation to repay is the site of a lot of possibility.

We can tell that it’s a site of a lot of possibility because at exactly the moment that more and more people are realizing that this moral obligation is bogus, there are financial planners, people like Suze Orman, saying that debt is an “addiction,” saying that debt is a failure of moral character, saying that debt is a failure of will. Michael Lewis, the journalist who has written a lot about the financial crisis, including The Big Short, compares debt to obesity, saying that Americans can’t help themselves when faced by a big piece of chocolate cake—that’s somehow is supposed to be an apt analogy for indebtedness.

All of those framings of debt as a failure of will or a failure of moral character assume that people are getting into debt to do things like buy yachts or buy flatscreen TVs. But if we really look at it, they are going into debt to pay for housing, food, healthcare, childcare, and education. That’s just one example of how the transformation and re-transformation of our ideas around these things really does make a difference both politically and historically.

CM: What happens when we view debt as a bad decision made by a consumer and not something they had to do for their survival?

AM: We miss two things. One of the things that we miss, and the thing that we were able to cover over culturally in the eighties, nineties, and early 2000s, is the underlying problems of inadequate income, inadequate wages, and inadequate levels of employment. If it looks as if the American economy is booming because people are buying lots of houses, we don’t see the way that is made possible by this very shaky house of cards, these mortgages that were unpayable. We miss those underlying factors.

The other thing that we miss is the way those loans were marketed and sold as commodities, as consumer goods to people in ways that were intentionally and knowingly exploitative. When somebody who is actually eligible for a prime loan from a bank and a decent interest rate, and is sold a subprime loan instead (and that happened almost exclusively to African-American borrowers), if we understand a person’s failure to pay off that subprime loan as failure of moral character, then we don’t understand the ways that failure was built into the system in advance, intentionally, in order to extract higher rates of interest and fees from those people.

In the book I don’t write very much about the shadow side of all these things, which is the non-bank sector, but if we look at things like pawn shops, payday loans, check cashing services, and all the ways in which the poor and unbanked in the United States are bilked every day out of billions and billions of dollars just to do basic things like cash a paycheck and go buy groceries—if we understand their inability to pay off these impossible loan agreements as a failure of moral character, then we don’t see the intentional exploitation that is going on in that system every day.

CM: You call credit a “fantasy.” To what degree is it a fantasy, in your opinion?

AM: What that language is supposed to get at is the way that credit is a cultural phenomenon. It may seem strange for somebody who teaches in an English department and basically writes about literature—novels, films, poems, art to some extent—to talk about all these economic issues, but in fact there’s an argument that has been made by a number of scholars that the emergence of credit instruments (IOUs, bills of sale, paper money—which is also a debt-backed currency) in the eighteenth and nineteenth centuries happened at the same time as the emergence of another kind of paper fiction, which was the novel. One of the things that a novel makes it possible to do is to imagine that things that we know are not true, actually are.

When we read a novel, we identify with the characters and we feel as if the events that we’re reading about are real—that is somehow related to our regard for, say, an IOU or a piece of paper currency, where we know that the object in itself is not valuable, but we treat it as if it is.

So one of the things that I’m trying to get at in calling credit a fantasy is thinking about its relationship to all these different cultural forms and ways of thinking and dreaming and speaking about debt, and allowing culture to get at something about debt that we might not be as fully aware of in our political discourse.

CM: Are we in a dictatorship of credit and debt? That is, are credit and debt in unquestioned power over our culture, as they function to ensure that their role in our culture stays unchanged, unrivaled, unmatched, and central?

AM: Yes, absolutely. This is most obvious in terms of student debt. Really the inspiration for this book was working with students and talking about their student debt. I was a graduate student in the University of California system in 2008 and 2009, when the university raised tuition quite abruptly, by 32% over the course of one year. So I was engaging students in activism and political resistance to that change. And it became really obvious to me that the fact that they were paying for their education with debt really contained and shaped their political responses to it.

For them, even a 32% tuition increase was almost meaningless, or they couldn’t quite grasp it because they were deferring the payment anyway. To them it was like, “Well, what’s another five thousand dollars? What’s another ten thousand dollars?” And that’s intentional. There’s something about having students pay for their education through debt that makes them feel indebted to the institution also in a broader sense; it also makes them feel anxious about their economic futures in ways that are likely to discourage resistance and refusal of the system that they’re in. And it also causes tuition increases and other changes seem abstract, like something that they don’t have to deal with now. That was very much the situation in the years immediately before the crisis.

But one of the things that I talk about in the book is my experience teaching students at University of Wisconsin, Milwaukee. These students have a very different relationship to their debt already. They have a much more “post-crisis” relationship to their debt, and rather than depoliticizing their relationship to the university and to capitalism, I think that it’s politicizing that relationship. It’s giving them a sense of exactly where they stand in the system, and giving them a really canny knowledge of how the system works.

When students can see their interests as aligned with people with mortgages who can’t pay them, or people with credit card debt who can’t pay it, or people who are being exploited by pawn shops or payday lenders, that’s where we get the basis for a real political movement that isn’t just on the campuses, isn’t just about cultural or counter-cultural protests, but really is a movement about economic injustice.

CM: You were already touching on this, but I want to make sure that people understand it: many people think that the cost of higher education went up because the state and federal government pulled out funds, and universities had to fill that vacuum of desperately needed resources. I used to think that, and said it on the show, plenty of times.

But isn’t the rising cost of education due rather to the same financialization that is at the heart of the housing and economic crisis of 2008?

AM: It absolutely is. Declining state support is certainly part of the picture, but it’s not the whole picture. There is a scholar in the UC system, Bob Meister, who has gone and dug into the books on this question, and he has noted that it’s not higher tuition rates that have caused higher levels of student debt: it is the reverse. The increased availability of student debt has encouraged universities to continue pushing tuition upward.

One of the reasons for that is the difference between the role of student tuition and the role of state support in the university’s budget. State support is usually considered restricted; you can only use state funding for certain things directly connected to education. Student tuition payments, however, even if they are funded by federal money through the student debt program, can be used for anything. Big capital projects, big real estate developments, fancy buildings.

They can also be used to pay administrative salaries. This is the other cause of increased tuition across public universities in the United States: the incredibly speedy rise of administrative salaries and the number of administrators that universities are employing. Universities now employ as many or more administrators as they do teaching faculty. None of that would be possible without an increased portion of the university budget coming directly from students.

When we talk about it being exclusively about state support, we’re missing at least half the picture of what’s really going on.

CM: So what happens if the tuition bubble bursts?

AM: I think we’re getting close to that right now. Look, tuition has increased 650 times faster than the consumer price index. If other commodities had increased at this rate in the last twenty years, we’d be paying twenty dollars for a gallon of gasoline. It’s an incredibly unique commodity in our current economy. There’s nothing like it in terms of the speed of the increase of the cost. And the reason that we’ve all been persuaded to continue paying, no matter how high it goes, is because there’s this sense that having a college degree is the only way to survive in the contemporary economy. To some extent that’s true, but it’s a lot less true than it used to be.

Look at rates of unemployment for students with a bachelor’s degree; look at how many people with a bachelor’s degree, when they graduate, are working jobs that don’t require a bachelor’s degree; look at the income of people with a college degree declining over the last ten years—that is a brand new phenomenon. What economists call the education premium, which is the amount of money that you earn on the basis of having a degree versus not having a degree—the education premium is shrinking. That’s a new thing for the United States economy.

The whole system of the federal student loan program was built on the assumption that rising education levels would correspond to rising incomes and rising employment rates, and that is less true today than ever before. So we’re really on the cusp of this bubble bursting, because people realize that the common sense that education is an investment in your future that you have to make is maybe no longer true. I think we are getting close to that.

I am concerned about what is likely to happen in the for-profit college sector, because that’s where the worst levels of exploitation are happening. And look at the response on Wall Street: their response to the recent election was that the stock values of for-profit education companies went through the roof. The assumption is that if we have a president who is himself an investor in the for-profit education sector, he is not likely to be regulating that sector any time soon, so that’s another place where we might see the expansion of a bubble and then a bust. Because those schools don’t provide employment or income outcomes anywhere close to the amount of debt that they get students to take on.

CM: You write, “Consider a small but revealing act of defacement that took place amid larger campus protests against tuition increases at the University of California, Berkeley, in 2010. Lining the campus walkways at the time were promotional posters from the university emblazoned with the words, ‘Thanks to Berkeley’ and filled in with a variety of motivational and enthusiastic student testimonials. One such poster, though, carried a different message: ‘Thanks to Berkeley,’ one protester scribbled onto the sign, ‘I’m in debt forever.’ Then even the word ‘Berkeley’ was crossed out and replaced with the word, ‘capitalism,’ providing an even more insightful account of the contemporary credit economy. ‘Thanks to capitalism, I am in debt forever.’

One might choose to read this clever bit of graffiti as a kind of individual complaint or solitary confession, yet in the context of the broader campus activism that was its occasion, it stands as one of several examples of a collective movement aimed at putting university life at the center of economic resistance.”

How much is debt at the center of campus activism today? And can we better understand the activism on today’s college campuses when we consider it as a form of economic resistance, not one of education?

AM: The turn of college activism towards debt allows student activists to start to see their interests as aligned with those in the working class and those without a college education, those in the middle class. Debt is a shared condition; it is probably the defining feature of American economic life today. In the wake of the election we’ve been talking a lot about all of these divisions between college educated and not, between middle class or professional workers and working class folks. Debt allows us to stop seeing those divisions, to see that the experience of having an unpayable level of debt and having that debt track you for your entire life is an increasingly shared experience.

I was really inspired by something in the UC system that carried through immediately after the crisis: the way student protesters got involved in anti-foreclosure protests, helping people try to keep their houses, helping people prevent evictions. When students can see their interests as aligned with people with mortgages who can’t pay them, or people with credit card debt who can’t pay it, or people who are being exploited by pawn shops or payday lenders, that’s where we get the basis for a real political movement that isn’t just on the campuses, isn’t just about cultural or counter-cultural protests, but really is a movement about economic injustice.

Even in a context of basically zero national economic growth, we also have a bubble looming, whether that’s the higher education bubble or another housing bubble. And I don’t see this as a resolvable problem in the way that it was resolved in the past, where there has been a new innovation within capitalism. We’re about to enter a period of total economic stagnation, globally as well as nationally.

CM: You write, “One way to view the contemporary crisis is as yet another in the series of repeating, intensifying shake-outs that have characterized capitalism since its inception. The most influential account of this view appears in Giovanni Arrighi’s The Long Twentieth Century, which describes a recurrent pattern in capitalism between epochs of material expansion and phases of financial expansion. Arrighi argues that each of these phases corresponded to a different imperial power as each hegemon enters its final stage of financialization. It comes into crisis and is forced to cede control of the global economy to a new rising hegemon. From the seventeenth to the mid-twentieth century, Italian rule gave way to Dutch, Dutch to British, and finally British to the US. As Arrighi’s account suggests, the current crisis is a crisis not only in financial markets and in the global economy, but also in US hegemony.”

Are we now seeing a global hegemon, the US, ceding power to a new rising hegemon? And if so, what nation, in your opinion, is that new rising hegemon?

AM: The argument, typically, has been that that new rising hegemon is China, or possibly the Pacific countries more generally. Clinton and Obama made the “pivot to Asia” in the second term of Obama’s administration, and there is a real sense that if there is a rising power in the global economy, it is probably China.

But I think that what’s been happening in the last few years has suggested that this is not the case. In each of these previous cycles, from the sixteenth century up through the late twentieth century, with the fall of one global economic superpower, there’s been another one ready to take on the global economy and drive growth. If we look at declining Chinese economic growth over the last few years, it doesn’t appear as if China is remotely prepared to fuel the entire global economy on its own. It doesn’t seem like that’s a possibility.

In the current moment we have a crisis that’s not like those past crises. It breaks the pattern. There is no new global superpower to take the reins of capitalism. That vacuum of political and economic power is also the cause of a lot of the political uncertainty today. Particularly if we look at things like the potential breakup of the European Union, we can see the way that these institutions that people thought were going to be the next source of global economic dynamism are themselves failing. So I think we are in a very new moment in terms of the history of capitalism.

CM: With debt, then, do we live in a world of unfounded optimism that we must believe in, that we must have faith in, or the whole economy will crash?

AM: We certainly used to be in a situation of optimism. Now we’re largely in a situation of fear. By calling the book Dead Pledges I’m talking about the horror or fear that is behind the very word mortgage. I think what used to be a situation of optimism and hope and assuming that our economic situation would always improve such that we can repay our debts has become a situation of fear and anxiety.

We can see that even in the ways that loan collection works. Whereas loan collection used to work basically by drawing on the language of moral obligation (“If you don’t pay your loans you’re a bad person”), in the last decade they’ve gone back to the kinds of techniques that they used in the nineteenth century, even to the extent of having what are essentially debtors’ prisons, where people end up in jail for not paying debt. If we look at the ways that debt collection has gotten increasingly more violent, then we see how what used to be a language of hope for the future has become a feeling of fear for the future.

CM: You write, “The crisis that began in the 1970s and came to full manifest expression in 2008 is a different kind of crisis than those that heralded the end of the Italian, Dutch, and British financial empires. In this crisis, there is neither a new rising hegemon to take the reins of power nor an eminent resolution available within the current regime of capital accumulation. Winter is coming. But not spring.”

So what is winter, then, in an economic sense?

AM: Winter is a situation where not only is it the case that people are not able to pay their debts, but that inability to pay debt also starts to wreak havoc on the system as a whole. We can actually see the looming effects of that. The language of winter and of no growth or no life reflects the way that the US economy has stagnated. The Federal Reserve still doesn’t feel safe raising interest rates, because growth continues to be really low. We have unemployment rates (if we look at the bigger picture of unemployment rates) continuing to be high, we have wages continuing to stagnate—they even fell this quarter. We do not have a vibrant economy. We do not have an economy that is able to power global capitalism on its own.

And nonetheless, housing prices are back up in a lot of parts of the country, particularly where I live in California…all the way back up to where they were in 2007. We have the possibility that even in a context of basically zero national economic growth, we also have a bubble looming, whether that’s the higher education bubble or another housing bubble. And I don’t see this as a resolvable problem in the way that it was resolved in the past, where there has been a new innovation within capitalism, a new transformative form of production (whether that’s the factory or the assembly line) or new technology (the micro-electronic revolution). I don’t think anything new like that is on the horizon, and in that context we’re about to enter a period of total economic stagnation, globally as well as nationally.

CM: One last question for you, Annie, and it’s our Question from Hell: the question we hate to ask, you might hate to answer, or our audience is going to hate your response. In resistance, you suggest sabotage and destruction against debt. Why are sabotage and destruction, in your opinion, the appropriate political response to debt?

AM: If we think about the other forms of political resistance that have typically characterized movements for economic justice—let’s take strikes as the primary one—those are not the tools of resistance for the present. Fewer people are in unionized work; fewer people are employed period. And we have this possibility for solidarity between students and workers that would not be captured by the strike form.

In that situation we have to go back to techniques like sabotage, which is an older technique. It’s not new. It’s part of early resistance to industrial work in the eighteenth and nineteenth centuries. We’re in a moment where we have to look back on those older forms and think about what sorts of possibilities they offer for the present and the future.

CM: We need information like the information in your book. I really appreciate you being on our show today.

AM: Thank you so much. I really appreciate it.

Featured image source: Chase Wilson via Civic Media Project

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