The current financial crisis is all about debt. That, at least, is the view which is promulgated in the financial press and by governments. It is related to other topics in this forum: economic growth abolishes debt in the long run; inflation erodes the burden of it; questions about the gold standard are related as well. So it seems that debt is the bedrock of all of these topics. Once again the term debt is simple in dictionary terms: and utterly confusing when you come to look at specifics. So let us have a think about debt. Will take a lot of thought and posts, but I hope you will think along with me for it is important.
If we begin with the experience of ordinary people it starts out quite simple. Dickens' Mr McCawber summed it up:
""Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
That is how many people look at debt, and some of us don't think much further than that: I am certainly one of those people, and I am afraid of debt. That fear comes from my family: the consequences of debt, as I perceive them, actually derive from the thread embodied in Mr Micawber and also from the experience of the depression in the 1930's and the means test imposed at that time. I didn't live through that; nor did my parents. It doesn't matter. Some events are so enormous in their impact that the lessons learned (or narrative adopted, if you prefer) are culturally transmitted. We have views about the meaning of events in history which are tied to that type of transmission, if we are not historians: and those are part of national self image, but also of tribal or class or gender identifications.
Each group has their own story and they are not necessarily shared. Thus, for example, in this country the generally shared perception of Winston Churchill is that he was a great war leader: beyond that some groups believe he was a great man in wider ways, and they point to his various achievements in other fields: in the writing of history, for example. Others do not believe that, and in their story his books don't matter at all: what matters is that he shot the workers in 1926: this means he was an unmitigated bastard, despite his wartime achievements, and that is how he is perceived. Obviously this is not to do with historical reality: I merely use this example to illustrate the fact that such stories are handed down through cultural transmission and they stand in parallel with "history" as normally understood. They matter. The comedian Jeremy Hardy has a very funny take on that kind of thing when he takes those stories which are important to the UK population and mixes them all up: the same kind of self deprecating humour about our national tales is intrinsic to "1066 And All That", so Hardy is carrying on tradition of poking fun at this kind of transmission and the impressions it leaves on us all. But they are not monolithic.
The depression of the 1930's is one of those stories: but it is not shared equally by all. Nor is it promoted in the way that the Battle of Waterloo, or the defeat of the Spanish Armada, is: as unifying concepts which foster national identity. The depression is not a unifying story, and so it is not in the interests of the nation to incorporate it when "socialising" children: a lot of education is designed to make little brits or little americans out of children with no national identity: and all states have a mainstream tale to transmit which furthers that aim. Some big events are in that tale and some are definitely not: but the people have their own tale which is slightly oblique: and that depends on other kinds of identification.
I have digressed, and you may be wondering what this has to do with the notion of debt. The reason I raise it is because cultural transmission which is not central to the state's purpose is more vulnerable to being lost when circumstances change: or to annihilation if the state or other powerful interests find it useful to attack those perceptions. The wisdom gained by oppressed groups is often lost in that way: and so each generation must re-invent the wheel. Standing on the shoulders of giants is not open to ethnic minorities or to women educated and formed in a society where the national narrative does not include them as central figures in history: they must start anew each time they come to a consciousness of a shared and separate identity. It seems to me that we are living in a period when the fear of debt has been extinguished to quite a large extent, in just this way. Not for the first time, I would suggest. Mr Micawber predated the shift in attitude to debt in the 1920's and that was a factor in the genesis of the depression.
QUOTE
As a result of these trends, in 1929 the top 0.1 percent of American families had a total income equal to that of the bottom 42 percent. This meant that many people who were willing to listen to the advertisers and purchase new products did not have enough money to do so. To get around this difficulty, the 1920s produced another innovation - "credit," an attractive name for consumer debt. People were allowed to "buy now, pay later." But this only put off the day when consumers accumulated so much debt that they could not keep buying up all the products coming off assembly lines. That day came in 1929.
The people knew that, and it frightened them for 50 years: but time passes and people forget the lessons learned especially when other forces are intent on helping them to forget. That must have happened between Mr Micawber and 1920: and it has been happening again since about 1980. There are many threads in achieving such a shift. There is the naked imposition of debt on those reluctant to accept it: student loans are an example of that; withdrawal of social housing so that the poor must take mortgages is another. There is the use of the media to create new wants and "needs" remorselessly, and to hold up rich life styles as reasonable aspirations by the exhibition of celebrities, and in particular celebrities who came from poor backgrounds: like footballers, for example. There is the suppression of any narrative of social improvement in favour of individual advancement, embodied in the statment "there is no such thing as society". Together these things and others serve to reduce the fear of debt: for if we must have debt, and if debt is the norm for our neighbours as well, we cannot continue to fear it in the same way: we would go mad with worry. And so this change is achieved.
Is it a bad thing? Mr Micawber's simple statement tells us that it is. But it is too simple to help us much. His statement is about income and expenditure: but the relationship between that and debt is not simple. If his prescription is followed then it is certainly rational to take on a mortgage if the repayment of that mortgage is less in a month than the alternative rent would be. The debt is divorced from the simple balancing of incomings and outgoings, and if it is ignored in the calculation then the way to happiness, in his terms, is to incur the debt. That truth was well understood by the neocons: the sale of social housing was made at an enormous discount so that the debt was relatively small: the asset underpinning that debt was more than enough to cover it (that is, it was oversecured): the alternative rent for the same property was being systematically and cynically raised to "market levels"; and interest rates were low, so that rent was higher than the cost of the mortgage. If you did not default you ended with an asset you would not have had before as well: with the prospect of helping your children in future, by leaving them something rather than nothing. That is both the story that was told, and part of the truth as well:but only part of it.
The other side is more obscure but it was also known: the discounted sale of social housing only applied to sitting tenants: those same children who were to benefit from the legacy could not find anywhere to live at a price they could afford while their parents lived. There was no social housing for them. Families did not factor in the cost of repairs and maintenance into their calculation of income v expenditure: because major repair costs are not regular and are not predicatable: also those costs were unfamiliar to social tenants because in social housing they are the responsibility of the landlord. Even running repair costs were alien to them, and they were not taken into account. Families which grew and needed larger houses were previously eligible for a move to meet their needs just on the basis of those needs: there were waiting lists through inadequate supply, but in the end the people were housed in accommodation which suited the family size. Once they bought the property there was no more obligation to ensure that: they must buy in the free market. Certainly they could sell: but they needed to upgrade and they had no surplus of that size: could not have. So they got stuck in overcrowding, with the tensions and indignities that imposes. That is not in the initial calculation either. If in later life they became ill and required residential care the house was an asset taken into account for means testing the costs: and when it came to be sold the proceeds went to pay for that care: so the children who were to inherit could not: the asset value was gone.
These aspects are all consequences of accepting the private debt and abandoning the social contract. They are not trivial and they go a long way to explaining some of the problems we now face. The problem of debt is not only a problem for the individual: it is a problem for the wider society quite directly. But those social consequences are no part of the neoliberal agenda: they are invisible because if there is no such thing as society then society cannot be harmed: it is incoherent.
