Published: 8 February 2020
Guests: Andrew Ross
Further reading: Creditocracy
It was the German philosopher and economist Karl Marx who said that there must be something rotten at the very core of a social system which increases its wealth without diminishing its misery. Today, there is no doubt that our social core is not in great shape. But where did the rot set in? For many of the 99 per cent, taking on debt is not only a necessity but helps ensure that the unearned lifestyles of the 1 per cent continues to be funded.
Indeed, the relationship between debt and humans is central to our history and our society. But since one of the greatest social problems we face is the virtual debt prison, has the time now come for the masses to break free from the economy’s debt vultures? Renegade Inc. host, Ross Ashcroft, met up with the author of Creditocracy, Andrew Ross, to discuss these questions.
Ross outlines how over the last 25 or 30 years:
“The power of the creditor class has become much more reinforced. As a result, many more profits are being funneled to creditors and those who have investments with creditors. Correspondingly, the mass of people who are indebted and simply cannot pay back their debts has risen. The primary source of income of the top 1 per cent of society over this period has been generated from economic rents (unearned income) mostly derived from relationships of debt.”
The relationship between economic rents as a source of unearned income, the ascendancy of the creditor class and its fueling of inequality through the auspices of credit and debt has, nevertheless, been largely air brushed from economic history. This is despite the fact that economic rent has been a key characteristic of developed economies.
The establishments airbrushing is arguably related to their attempt at deflecting the public away from any understanding that the source of all real wealth is derived, not from interest, debts and other forms of unearned income (the driver of inequality), but from the productive sector of society. The emergence of what Ross terms as a creditocracy over the past 20 or 30 years relates to the process of unearned income developed by the creditor class to which a vast swath of the population have become indebted.
Creditocracies, enforced by oligarchies, have had – as Ross acknowledges – a terrible impact on the democracy of nations. This is the case whether in the global south where the path to independence after colonization were stymied by the imposition of debt traps (euphemism: Foreign Direct Investments), or in relation to the countries of the global north such as Greece, Italy, Spain and Portugal.
“These EU states”, says Ross, “were put in the position where their elected officials had to serve external creditors as opposed to serving the needs of their citizenry. When you reach that point, then clearly that’s a failed democracy.”
A similar pattern is also happening in cities which have to balance their municipal budgets. There are more and more beholden to Wall Street creditors. Ross also notes that, historically, it has tended to be the poorest who have been hardest hit by debt.
However, over recent decades it has been the middle classes who have become increasingly prone to the debt trap indicative of the emergence of the creditocracy. “It’s a society where access to public goods and social goods has to be debt financed and where there is a toll put on almost every income stream and revenue source in people’s daily lives”, says Ross.
The author believes that by 2013 indebtedness effectively became normalized to the extent that:
“economists pretty much convinced us that it was safe to start borrowing again. And as a result, we’ve seen this inexorable rise to new peaks. Globally, the numbers are off the scale in terms of total global debt.”
With indebtedness among the young becoming seemingly ever more entrenched, the hope that successive generations will be able to free themselves from the treadmill is perhaps wishful thinking. Nevertheless, the notion of a perceived inter-generational conflict is of no concern to Ross: “To me the problems are trans-generational. I think the conflict between generations is a bit of a smokescreen”, he says.
Rather, the author points to a long history of resistance movements that have challenged the immoral presuppositions around Third World debt which, he argues, have now gravitated towards the landscape of household debt in a country like the United States.
“We see similar arguments being made about the immorality of burdening people with debt when they can’t pay it back. The moment of Occupy Wall Street was very important in this country in that regard because it really did generate a whole new wave of debt resistance groups. Odious debts are illegitimate debts. And to resist them as a form of economic disobedience, is perfectly justified”, says Ross.
Student debt in the US is an area that the author has been most active in. He is clear that this is not a financially insurmountable problem and that the benefits to a functioning democracy would be immeasurable. “The federal government already spends almost as much money subsidizing the current debt system. And I think it’s important to understand that the government actually profits immensely from extending student loans”, says Ross.
In terms of expressing his hopes for a future student landscape, the author appears to be relatively optimistic that public colleges in the US could become tuition free and that there will be a massive reinvestment in public higher education. “This is the 21st century. Most other industrialized countries in the world are able to do this. None of them are as affluent as the United States. Mexican universities are perfectly good. They’re tuition free. It’s a country that does not have anything like the resources of its northern neighbour. So there’s no economic reason why this is not possible. It’s an issue of political will”, says Ross.
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