The Politics of Debt

Essays and Interviews

The Politics of Debt

Essays and Interviews

Sjoerd van Tuinen

and Arjen Kleinherenbrink

Winchester, UK

Washington, USA

First published by Zero Books, 2020

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© Sjoerd van Tuinen & Arjen Kleinherenbrink 2018

ISBN: 978 1 78904 228 3

978 1 78904 229 0 (ebook)

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Contents

Cover

Half Title

Title

Copyright

Contents

The Financial Crisis: Ten Years Later Arjen Kleinherenbrink and Sjoerd van Tuinen

1. Debts and Interests from the Perspective of the General Economy Émilie Bernier

2. Credit as Political Technology Jean-François Bissonnette

3. Debt and Utopia Richard Dienst

4. The Politics of Credit Philip Goodchild

5. The Bitter Necessity of Debt: Neoliberal Finance and the Society of Control Steven Shaviro

6. Debt: Managing an Impossible Inheritance Elettra Stimilli

7. Interview with Mark Blyth

8. Interview with Andrea Fumagalli

9. Interview with Costas Lapavitsas

10. Interview with Maurizio Lazzarato

11. Interview with Tomáš Sedláček

Endnotes

References

Cover

Half Title

Title

Copyright

Contents

The Financial Crisis: Ten Years Later

1. Debts and Interests from the Perspective of the General Economy

2. Credit as Political Technology

3. Debt and Utopia

4. The Politics of Credit

5. The Bitter Necessity of Debt: Neoliberal Finance and the Society of Control

6. Debt: Managing an Impossible Inheritance

7. Interview with Mark Blyth

8. Interview with Andrea Fumagalli

9. Interview with Costas Lapavitsas

10. Interview with Maurizio Lazzarato

11. Interview with Tomáš Sedláček

Endnotes

References

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Guide

Cover

Half Title

Title

Copyright

Contents

The Financial Crisis: Ten Years Later

Start of Content

Endnotes

References

The Financial Crisis: Ten Years Later

Arjen Kleinherenbrink and Sjoerd van Tuinen

The crisis and its roots

Capitalism has always had its crises. This time, the crisis began in the United States. Mesmerized by a booming housing market and high demand for mortgage-backed securities in financial markets, lenders had started issuing vast numbers of mortgages to borrowers with bad credit scores and low incomes. These subprime loans soon became the main ingredient of mortgage bundles that were traded on the open market. Such collateralized debt obligations (CDOs) would normally consist of diversified debt, so that defaults on high risk loans would be compensated by continued payments on reliable loans. By 2006, however, these packages were dominated by high risk subprime mortgage debt. Credit-rating agencies nonetheless kept awarding CDOs the coveted triple A status, which reinforced the belief that subprime mortgages were safe and sound investments.

We all know what happened next. The housing market peaked, house prices started to drop, and borrowers started to default. In 2007 and 2008, the ensuing subprime crisis dragged the United States and many other countries into the Great Recession, the worst financial catastrophe since the 1930s. In the wake of this, a European debt crisis erupted in 2009. Several EU countries found themselves unable to repay their government debt and were forced to bail out their banks with taxpayer money and credit from the infamous Troika – the European Commission, the European Central Bank and the International Monetary Fund. It was then decided that austerity politics would offer the fastest road to recovery, a decision that many of those responsible now openly regret. At the time, however, EU member states either volunteered or were coerced to drastically reduce government spending. Public services, social safety nets and education as well as healthcare systems took the brunt of the impact in the form of massive budget cuts, privatization and defunding.

These crises were not isolated incidents. Their size and impact notwithstanding, they are but symptoms of deeper, structural problems inherent to the neoliberal politics and economics that have been in the ascendant since the Reagan and Thatcher years. As scholars such as David Harvey and Wolfgang Streeck remind us, our current political and economic situation must be interpreted in light of a class compromise that ended in the 1970s.¹ After the Second World War, the Western world agreed to make capitalism operate in conjunction with social democracy. There would be free markets for the pursuit of profit and accumulation of wealth, but states would intervene in those markets in the interest of keeping the social peace. Hence the emergence of the welfare state: a balancing mechanism to compensate the indifference of markets with a measure of social justice and wealth redistribution. This seemed to work for several decades, until economic growth collapsed in the 1970s.

For Harvey, what followed was a power grab, as economic elites and ruling classes got nervous and moved to protect their own interests, thereby ushering in a renewed phase of class struggle. According to Streeck, a golden age of capitalism, with indefinitely increasing wealth for owners and workers alike, ended in the 1970s. The new reality was characterized by the mutually reinforcing tendencies of declining growth, mounting debt and increasing inequality. Neoliberalism emerged as a series of attempts (including experiments with inflation, public and government debts, and new financial products) to overcome these problems. Free markets were allowed to colonize and commodify increasingly large parts of our private lives, public institutions, planetary resources and of course money and credit themselves (the so-called financialization – or liquefaction/liquidation – of debts), based on the belief that capitalism would start delivering on its promises if only it were allowed to expand everywhere. Unsurprisingly, the result was more declining growth (save for the happy few), increasing inequality and growing debt, which turned out to be structural and not incidental features of our socio-economical arrangements.² The recent crises, then, result in part from the continued application of a solution that in fact only exacerbates the problem.

Yet neoliberalism is more than renewed struggle in a globalized and financialized world – the prefix neo is wholly deserved. Philip Mirowski, for example, has asked how it is possible that the very elites and institutions that caused a global financial catastrophe are not just still in power, but have even managed to consolidate their positions.³ Mirowski’s hypothesis is that many of us – particularly economists – now suffer from anxiety-inducing cognitive dissonance, which we remedy by reinterpreting the failures of capitalist doctrine as if they were confirmations of its truth. Mirowski further identifies a neoliberal thought collective, centered around the infamous Mont Pèlerin Society, which actively feeds the world such reinterpretations.

A distinct feature of neoliberalism is its reengineering of the state into an instrument to actively shape citizens into individualistic entrepreneurs of the self, contra more classical approaches according to which people would naturally behave as self-interested utility maximizers, so that the state merely had to step back in order for free markets to flourish.⁴ If financial elites have learned anything, it is that states are incredibly useful tools to help their interests survive a crisis while ordinary citizens suffer. Although generally kept at bay by the powerful, states have suddenly become necessary to reestablish order and save the banks. This illustrates how under neoliberalism, crisis itself is actively wielded as a tool by corporate and financial elites.⁵

What we are dealing with are therefore not just financial crises, but structural effects that concern the political systems and social fabric of entire countries. There is a bitter irony in using the term financial crisis in relation to 2007 and 2008, as it is precisely finance that has emerged largely unscathed and – as we will see – continues to operate as it has for decades, while the repercussions for societies and states have been enormous and irreversible. This raises a first type of question: What are the proper points of application to improve the current economic and political order? If the crisis is rooted in deep structural features of our social system, then the implementation of slightly stricter regulation here and some ethical codes of conduct there is laughable – even though this is, by and large, what the response to the Great Recession and Eurozone crisis has come down to. The problem is that there is no real alternative on the table: there is no New Deal or Keynesian strategy with sufficient political and popular support, and no actor powerful enough for its large-scale implementation.

Populism and politics

When the Eurozone crisis began, people were encouraged not to overthink things. The crisis was portrayed as an accident (albeit a sizable one), as something that definitely did not express systematic problems. The lazy Greeks simply had not paid their bills, or such was the narrative frame that conceived of national economies as isomorphic to household finances. Officials like Jeroen Dijsselbloem donned the mantle of stern bookkeepers that would swoop in to save the EU from the Greeks and the Greeks from themselves. When it turned out that Italy, Spain, Portugal and Ireland were also full of lazy Greeks, the EU started to save them as well.

Trying to pass the crisis off as a merely arithmetical affair of collecting some overdue payments did not succeed. Instead, the crisis painfully ruptured a political and economic fault line that runs roughly between the northern and southern members of the Eurozone. Briefly put, economic growth in southern countries is mainly driven by domestic demand, whereas northern countries mainly realize growth via exports. Because of this difference, any economic measure (for example, fixing exchange rates or devaluing currency) can potentially be beneficial to the North while spelling disaster for the South, and vice versa.⁶ The German-led North has the upper hand in the resulting power dynamic. When the crisis hit, devaluation of the euro would likely have allowed the South to restore competitiveness, but this was not an attractive option for the North. The South was forced to implement disastrous austerity measures instead. For countries like Greece, the economic future now looks bleak because of this. Hollowed out by austerity politics and even more dependent on the EU’s good graces, each new crisis will see such countries rely on further credit and bailouts from the North, a situation that is ultimately highly undesirable for both regions. Unsurprisingly, scholars and politicians from across the political spectrum have started to argue that these countries might be better off without the euro, in order to escape what is essentially debt bondage on a geopolitical level.

A second rupture that emerged with the crisis lies not between countries, but between elites and ordinary citizens. The raucous reawakening of populism is easily the most politically significant result of the crisis. The election of Donald Trump, Brexit and the rise of populist parties in Europe and elsewhere all signal the bankruptcy of the belief that free markets and globalization will be beneficial to all. As this illusion was shattered, center-Left parties were dealt a tremendous electoral blow. In previous decades, they had made themselves the figureheads of the idea that even ordinary workers would benefit from economic globalization, and of the notion that free-market thinking was pragmatic or realistic as opposed to outdated leftist ideals. After the crisis, they had to pay the price for shaking off [their] ideological feathers, which the Dutch Labor prime minister Wim Kok could still proudly call a liberating experience back in 1995.

The new populism is partially directed against the system. It rails against the power and indifference of banks, multinationals, EU technocrats and corporate lobbies. It calls for an end to the ceaseless depoliticization of the public interest into the schemes of international finance. It demands a restoration of the sovereignty of nations and the dignity of citizens that has been undone or rendered impotent by distant transnational governments and the cold logic of the market. Yet the new populism does not just concern itself with bureaucratic and economic affronts. Were this the case, then it might have died down once economies started to recover. Instead, the new populism lashes out against anything associated with the intrusion of the wider world into local communities, against anything that denies people stability and sovereignty in social, economic, political and religious affairs. The new populism therefore also has it out for immigrants, feminists, Muslims and for a host of progressive ideas that it claims have facilitated economic and cultural displacement ever since the 1960s. Again, there is a bitter irony to this focus on identity and ideology instead of material causes. While it serves populism’s dire need for intellectual cachet, it does not take a genius to see that, for example, the loss of industrial jobs in Western nations and economic migration to those same countries can be traced back to the same root causes, all pertaining to globalized capitalism. Yet instead of solidarity, the prevailing response is hostility toward the Other who threatens what little one has left after decades of globalization.

A recurring strand of thought in this new populism is the idea that once all sorts of cultural problems are fixed, economic prosperity will automatically return. In many countries, populism therefore leans toward the (identitarian) right side of the political spectrum, and it is indeed the political Right that seems to profit most from the reestablishment of mass popular outrage as a political force. Nevertheless, scholars like Ernesto Laclau and Chantal Mouffe have argued that now is also the time for a left-wing populism that incorporates various struggles against economic oppression and cultural discrimination.⁷ Such a populism might have a real chance in Latin America and Southern Europe, but in countries such as the UK and the US, the Left currently still seems to be too internally divided for this to occur.

These two ruptures, one between North and South and the other between the 1 percent and the ordinary people, are the fault lines of a global political struggle concerning debt, dependence, identity and sovereignty. This continuing struggle cannot be neatly divided into separate economic, political and social components. This raises a second type of question. How can we once again start thinking and acting as political economists, rather than just as economists who pretend that the world is a ledger? How to restore financial security, cultural stability and political sovereignty to ordinary citizens? Is there an alternative to the Scylla of continued globalization and the Charybdis of reactionary nationalism? What of the role of states, transnational governments and the many experiments with direct democracy in all this?

The inertia of finance

Roughly a decade after the crisis, we see that the financial world is even stronger than before. As an article in The Economist puts it: Anyone who fell asleep in 2006 and woke up to look at the financial markets today would have no idea there had ever been a crisis.⁸ In many places, share prices are soaring, interests are low, unemployment is low and investor confidence is high. As long as one selectively ignores the regions struck hardest by the crisis and the ensuing austerity politics, everyone seems to be doing well. Except, of course, for the increasing precarization of labor, the hollowing out of pensions, and a few other things that only a spoilsport would bring up in joyous times of economic recovery.

The financial world has regained its self-confidence and, as such, has returned to its pre-crisis modus operandi. The world is once again operating at record levels of corporate, household, government and investor debt. Subprime mortgages