On Public Debt

Media pundits, economists, and politicians claim that the current level of public indebtedness in the U.S. and its further expansion are “unsustainable.”

Seemingly, “our” profligacy is catching up with us. The day of reckoning approaches. We should either prepare for a drastic decline in social welfare tomorrow or accept a worsening of the economic situation today — e.g. the government should limit its meager “stimulus” spending and allow the economy to slip into greater joblessness to prevent the looming catastrophe. The crisis in Greece, that many commentators attribute to a borrowing binge by the Greek government, is now being alluded as exhibit 1.  It won’t take long before they use the current anxiety in financial markets as exhibit 2.  The usually lucid Arianna Huffington is now joining this parade of nonsense with her “Life in the Age of “Much Worse Than We Thought It Would Be”” (http://huff.to/bu0txF).

Economists, of course, will pretend that fundamental scarcity — i.e. the fact that society’s total labor time and its productive force are never infinite — is at the root of the dilemma. Society’s cake is finite, and one cannot eat it and have it at once. Except that this is a false premise. The public debt (or the private debt, for that matter) has absolutely nothing to do with the finiteness of society’s resources and productive possibilities. It’s not nature but social convention or, more precisely put, social structure.

Public debt is not about the limited production possibilities of our society. Public debt is about how the wealth that exists (or will be produced) is (or will be) held — by whom and at whose exclusion. In other words, it is about how the ownership over existing wealth is distributed. It’s about who owns today’s wealth and, hence, holds the enforceable claims over future production flows. It is not about how large these flows can be with existing resources and productivity. Wealth distribution is a social condition, not a fact of nature. It is entirely within the reach of human capabilities to alter the form in which wealth ownership is distributed.

Of course, the smuggled pretension here is that the only conceivable or legitimate way in which wealth ownership can be reshuffled in our society is via the market mechanism: that private ownership is sacred. But, any thought about it shows that the pretension is exactly contrary to the very (contradictory) institutional framework and modus operandi of modern capitalist societies. No modern capitalist society would last long without a massive state — tasked with enforcing and protecting ownership rights, disciplining labor, undertaking social programs to preempt unrest, waging wars, regulating commerce, and plain taking from the poor (and the out-of-favor rich) to give to the rich (and better connected). A massive state requires taxation and the allocation of expenditures outside of the market mechanism.

Furthermore, historically, under capitalism, high levels of public (or private) indebtedness have always been resolved, partially or entirely, through politically-sanctioned or politically-induced processes of wealth redistribution — from land reforms and outright expropriation to price management to relatively benign inflationary processes.

The McKinsey Global Institute (http://bit.ly/8bQV8z) estimates that adjusting the imbalances that led to the ongoing crisis will require a (on average) 6-7 year long process of “deleveraging,” which should wind up reducing the ratio of debt to GDP by 25%!  Banning a carnage, how can such a massive transfer of wealth ownership ever happen anywhere without a politically sanctioned process? Can any society today accomplish this feat by heeding Andrew Mellon’s dictum alone — liquidate, liquidate, liquidate? At what human cost? (Isn’t the point of an economy supposed to be “human welfare”?)

Unless working people are willing to see themselves reduced to chopped liver, they are going to have to take matters on their own hand. The Greek people are showing the way. And this is not an endorsement of the methods of small anarchist groups or professional provocateurs. It’s simply the notion that working people will need to take collective action, rather than wait for the powers to decide how to allocate the cost of the “adjustment.”

Just like the spike in public indebtedness in Greece followed the financial panic and the government’s effort to prop up its banks (see Costas Lapavitsas, http://bit.ly/cMQeMn), public indebtedness in the U.S. has next-to-zero to do with welfare queens on Cadillacs or poor people getting over their heads with subprime mortgage borrowing. It has mostly to do with war making, tax cuts for the rich, the secular decline in the real income and economic security of working people since the 1970s, and the financial blowout — all phenomena rooted in the foundations of capitalism.

There’s nothing inevitable here, but the struggle. It is a class struggle.

[Note to economic theorists: I am not claiming that distribution and efficiency are independent variables under an abstract, pure, and functional capitalist economy. Those theoretical constructs assume that capitalism functions smoothly. In other words, they assume that working people are reduced to perpetual political submission. I’m referring to the fact that things do not have to be that way.]


  1. Well, there are some inevitabilities to the extent that certain actions can be predicted to have certain outcomes with a very high degree of probability, given the weight of the past. But you are correct to say the Greeks have to assert themselves for what is theirs, what they created with their own work and creativity. Why should they have that stolen from them? That isn’t fair. But as anyone knows, the question is whether you assert yourself correctly. We can assert ourselves in all sorts of ways, but it might not hit the spot. The important thing is that it does hit the spot. http://www.youtube.com/watch?v=7ppmdvXsMBE

  2. The political-economy of wage-slavery in the USA results in only around 12% of the wealth going to the producers. I imagine the same is true for Greek workers. The billionaires can lose a few million and still live high on the hog. There’s no reason for the working class to have to lower its standard of living. If anyone owes, the fingers should be pointed at the parasites in the ruling class and it looks like a lot of Greek workers are doing just that. Just how much they know about their true situation as wealth producers is the question. If Greek workers can be fooled by patriotic arguments about what’s good for the nation and so on, they’ll lose the current class battle over how the political-economy of Greece should be designed.

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