Sovereign (national) debt looms large in our collective imaginations now: with Greece, Spain, and Ireland teetering on the brink of sovereign default; and with national deficits exploding in such far-flung places as the US, Ireland, Japan, and Iceland. We seem to be at a tipping point globally. Sovereign debt is being repudiated by overwhelming majorities in Iceland, Greece, and elsewhere. That’s right. Icelanders are not going to accept hairshirts and living in penury for a generation or more to satisfy their foreign creditors. Would that this happened earlier with Third World debt or IMF “conditionalities,” which have strip-mined those countries for decades, or earlier still with the odious debt Haiti paid to France for its first hundred years and that condemned it to poverty from the start.
Alas, not everyone “gets it” yet: Ireland, the UK, the EU and the US are still using taxpayer obligations (sovereign debt) to bail out banks and the financial system. If our quality of life begins to deteriorate at an alarming rate, however, attitudes could change overnight.
If that comes to pass, we will see some remarkable changes. The modern financial system, both the bond markets and stock markets, began with government debt used to fund wars (see Niall Ferguson, The Cash Nexus: Money and Power in the Modern World, 1700-2000), and government debt remains its bedrock. If the unravelling of the mortgage-backed securities market in 2007-2008 shook the financial system to its core, it was only bailouts of the banks and the system by government debt that saved it then. Indeed, if sovereign debt goes to hell in a hand-basket and is openly repudiated as illegitimate, we could wake up one day to see a very different world, surely a much better one!
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Some commonsensical economists advocate a massive expansion of government deficits, not to bail out bankers, mind you, but to bail out the jobless, homeowners underwater on their fraudulent mortgages, and the hapless working poor suffering from cutbacks in social safety-nets. Creating growth from the bottom up and so re-powering the real economy. But this entails, in effect, mortgaging the future income of the entire country.
Yet many idealistic but no less commonsensical folks feel that we have an opportunity here to repudiate unsustainable growth. So what seems the most compassionate path may in the end create a deepening dependency on a heartless system, and what seems harsh and dreadful may open the way for a smaller, more convivial economy and world. Do we really want to get this global juggernaut, whose giant wheels are crushing so many, back in motion? What role does debt, especially sovereign debt, play in driving this economic megamachine?
The economists pressing for massive government spending and more debt are followers of Keynes to some degree, and their models are completely cut off from any considerations of the carrying capacity of the earth, the depletion of natural resources (fossil fuels, fossil water, soils, rare earth elements) and the poisoning of our oceans, air, and water with the toxic waste of our incessant economic activity. For them, as for Keynes, the human economy is a social construct, a machine that is autonomous, following its own rules, exploiting and using materials and energy from the environment, but where problems like peak oil or peak water or pollution or social disorder are “externalities”. That is to say, they don’t count. All that counts is economic growth and full employment. If we had infinite resources, if the earth had an infinite capacity to absorb our waste, and if human beings did not chafe or even collapse under the demands of the economic megamachine, the pragmatism and guidance of these economists would put us in a far more equitable and prosperous place than the pundits whispering in Obama’s ear have done. But they are, no less, wedded to growth and are little more than very skillful mechanics of a global economic megamachine that is laying waste to the earth.
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Sovereign credit, where the national government creates credit money and spends it into the economy without debt, sounds great (see the works of L. Randall Wray, William Black, Michael Hudson, and others at the University of Missouri at Kansas City), but it too will foster economic growth that the earth cannot support. The earth, and not some arbitrary percentage of GDP, has to be our guide. We need ecologists here, not bean counters or underwriters!
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From a banker’s point of view, what better or more reliable revenue stream could there be than the tax revenue of a nation-state? You can capture the labor, natural resources, and gross product of an entire country! And if they don’t pay off, you strip their assets!
The Third World debt of the past forty years is probably the most egregious example of “odious” or illegitimate debt: loans for armaments to tin-pot dictators that enriched American or Belgian defense firms; loans for huge infrastructure projects such as irrigation and hydroelectric dams that in the end poisoned the soils with salt, drew down aquifers, and displaced thousands of villages and communities, but in the process swelled the coffers of foreign corporations and enriched local government officials and elites. Yet the entire country was burdened with this compounding debt for generations.
Such exploitative “nation-building” laid the groundwork for internecine conflict and corrupt government in these countries (see Susan George, The Debt Boomerang; Michael Klare, Resource Wars; and Mike Davis, Planet of Slums).
It explains, too, why we in the First World overthrow governments that have the temerity to act in the interests of their own people and against US/British/European interests (Stephen Kinzer, Overthrow: America’s Century of Regime Change from Hawaii to Iraq).
Nation-states are critical pawns in the power games and economic predation of our modern world. Without them, people and resources would be much more difficult to control and exploit. It is why the anarchist hill-tribes of Southeast Asia frustrated not only colonial powers but even early city-states, in the lush valleys, who wished to capture their slave labor and resources (James C. Scott, The Art of Not Being Governed: An Anarchist History of Upland Southeast Asia).
In a genuinely convivial and localized world, nation-states and their megacities will, one can only hope, wither on the vine.
(Convivial: a term used by Ivan Illich and popular in the Slow Food movement, meaning fostering community and a living local economy and culture; see, too, the kindred ideas of degrowth or décroissance popularized by Serge Latouche and others in Europe.)
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Think of all the revenue streams that depend on the average working person: not only local government bonds (debt) and sovereign debt, but his mortgage, student loans, car loans, health insurance, consumer debt, and then too the ever-abstracting structured finance and derivatives markets that pyramid on these debt-servicing streams….. It is a very sophisticated system of bond slavery, serving a wealthy international elite, and it is so much more “civilized” than standing over workers with whips and staves!
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What it comes down to was baldly stated by the 18th-century farmer-radical pamphleteer William Cobbett, who travelled on horseback through England and described in his Rural Rides the impoverishment of the countryside by the sovereign debt incurred to wage war against Napoleon: “It is the destructive, the murderous paper-system, that has transferred the fruit of labor, and the people along with it, from the different parts of the country to the all-devouring Wen [tumor, cancer; the paper-system is paper money or paper bonds issued to borrow money for the war in France]” (Rural Rides, vol. 1, p. 136). London is a giant Wen, absorbing all the wealth (in the form of interest payments and principle on their gilts or bonds, which was squeezed from the countryside in ruinous taxes and went into the pockets of the rich who owned the bonds, the “tax-eaters”); “it is due to the infernal funding [sovereign debt to fund wars] and taxing system, which of necessity drives [wealth] into great masses to save itself” (ibid., vol. 2, p. 301).
Cobbett intuitively grasped the connection between the national debt, concentration of wealth in an urban elite, and the growth of manufacturing and finance in cities (Ferguson, The Cash Nexus, p. 193). This is the heart of capitalism. A massing of capital, resources, workers in cities. This immense accumulation of energy (food, money), creates division of labor, rich abstract languages of communication, the arts, a leisured elite, and an impoverished hard-scrabble peasantry or hinterland. Cobbett’s scornful term the Great Wen for London vividly describes the infinite growth of this ant hill, devouring all nearby and then going abroad to conquer other lands.
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Cities as centers of finance. They tend to higher and higher levels of abstraction both in finance (derivatives) and in the arts, social personae, and other forms of representation. Taken too far, abstraction separates us from our bodies and the world and others; it enables an impersonal exploitation of the earth and other people. But apart from abstraction in war, the despotic power or terrorism of British airplanes in the Middle East “disciplining” Bedouin tribesmen in the 1920s (Toby Dodge, Inventing Iraq) or drones in today’s Afghanistan, abstraction in finance and money is the most destructive of all.
Money is “the disease of the whites,” yimbeefu kya mboongu, in the words of mothers and grandmothers in the megaslums of Kinshasa (Democratic Republic of the Congo), seeking to reestablish subsistence agriculture and rural forms of self-help (Mike Davis, Planet of Slums).
I would say, instead, that abstraction is the disease of whites. Money and debt are just one form of this.
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