We’re constantly told that mass defaults would destroy the economy, but this is more of the great lie promulgated by the corporate media. Mass defaults would destroy much of the wealth of the financial elite which has been greatly enriched by the global expansion of debt, while freeing the debtors of their obligations.
Going further, this insistence on creditors uber alles is historically false. Debt jubilees, land distribution, proclamations cancelling debts, liberating bond-servants were what kept liberty for citizens in ancient times. Modern economists wedded to neoliberal shibboleths have distorted this history to favor creditors, ie the bankers who control our society. But facts matter little when it comes to dishing out propaganda to a largely clueless American public.
David Graeber’s book, Debt: The First Five Thousand Years, summarized how royal debt cancellation in the ancient Near East to show that interest-bearing debt originally was adopted with checks and balances to prevent it from polarizing society between creditors and debtors. In fact, all ancient societies had a mistrust of wealth, above all monetary and financial wealth in creditor hands, because it generally tended to be accumulated at the expense of society at large.
Heterodox economist Michael Hudson also writes about debt, from antiquity to the present. “As I have sought to emphasize, oligarchic control of government has been the distinguishing feature of Western civilization ever since classical antiquity. And the key to this control has been opposition to strong government – that is, civil government strong enough to prevent a creditor oligarchy from emerging and monopolizing control of land and wealth, making itself into a hereditary aristocracy, a rentier-class living off land rents, interest and monopoly privileges that reduce the population at large to austerity.”
The US economy is based on financial capitalism. Financial capitalism, especially since 1980, is the nationalistic doctrine of American banks and the American 1%, and the American financial sector that is sort of merged into a symbiotic unit with the insurance and real estate industries (FIRE). Unfortunately financial capitalism is ultimately extractive rather than productive. The US has been essentially cannibalizing its productive economy for decades while loading Americans up with debt to make up for their diminished salaries. Instead of subsidizing essential infrastructure–education, health care, transportation–to enable a low cost economy the US has, under the influence of neoliberal ideologues, privatized it’s infrastructure so that everything is too expensive.
The reason the neoliberal financial engineers have been able to cannibalize the tremendous source of wealth is that the US developed through productive, industrial capitalism. Industrial capitalism in the nineteenth century was all in favor of strong government infrastructure. The ideal of industrial capitalism was to keep the wage costs of production down not by reducing wages but having government provide a basic infrastructure to cover the basic needs of employees. The governments would provide free education so that employers didn’t have to pay for it. The governments would provide medical care so that employees didn’t have to pay for it and employers wouldn’t have to pay employees enough money to cover the education costs and to cover the medical care costs. The government would build roads and infrastructure and everything to facilitate the overall cost of doing business by industrial capital.
Financial capitalism is just the opposite. Finance capitalism wants to privatize and take education, medical care, and roads and erect tool booths across these vital parts of the nations infrastructure. That way they can pay out their economic rent to the bondholders and the stockholders and this economic rent adds to the cost of education, health care, internet and everything else that workers need to live on so the result is to make it a high cost economy, that’s up to its eyeballs in debt.
As you might have noticed from Obama’s time in office when he bailed out the bankers and kept the debts in place, the government has become the protector of the wealthy, and so defaults that actually impact the wealthy are off limits. The wealthy will demand the state absorb their losses (recall that profits are private while losses are socialized). However, and this is the ultimate explosive political question, the only equitable solution is to force the losses on those who have profited so handsomely off of the mountains of debt.
We need a debt jubilee.
Update: I’ve come to believe that a right-wing populist campaigning on a debt jubilee could capture the presidency.