America’s “creditocracy”

THE GOLDEN age of unsolicited credit-card applications ended about five years ago. It must have been a relief at the post office. At least 10 envelopes came each week--often with non-functioning replica cards enclosed, to elicit the anticipatory thrill of fresh plastic in the recipient's hot little hand.

For a while, I would open each envelope and carefully shred anything with my name on it, lest an identity thief go on a shopping spree in my name. But at some point I gave up, because there were just too many of them. Besides, any identity thief worth worrying about enjoyed better options than trash-diving for unopened mail.

Something started happening circa 2006 or '07. More and more often, the very envelopes carried wording to the effect that approval for a new card was a formality, so act now! With the benefit of hindsight, this reads as a last surge of economic acceleration before the crash just ahead. But at the time, I figured that credit card companies were growing desperate to grab our attention, since many of us were throwing the offers away without a second glance.

The two alternatives--turbocharged consumerism on the one hand, the depleted willingness (or capacity) of consumers to take on more debt, on the other--are not mutually exclusive. It was subprime mortgages rather than overextended credit cards that brought the go-go-'00s to an early end, but each was a manifestation of the system Andrew Ross writes about in Creditocracy and the Case for Debt Refusal (OR Books).

Ross, a professor of social and cultural analysis at New York University, was active in Occupy Wall Street, and Creditocracy bears a few traces of the movement, both in its plainspoken and inclusive expressions of anger (this I like) and its redeployment of old anarco-syndicalist ideas (that, not so much).

ONE COMMONPLACE account of the near-collapse of the world financial system in 2008 is that it was the product of consumer hedonism at its most irresponsible. It was just deserts for people playing Xbox on jumbo flat-screen TVs in subprime-mortgaged houses they shouldn't be in. Whatever the limits of its explanatory power, this interpretation allows for a pleasing discharge of moralistic aggression. Hence its popularity.

The most familiar argument opposing it places the blame, rather, on bankers, brokers and other criminals "too big to jail." It was they who were greedy and short-sighted, not average people.

Besides the more obvious similarities, what these explanations share is an implication that the disaster could have been avoided with some self-discipline and the understanding that hyperbolic discounting is a very bad habit.

Ross leans in the anti-plutocratic direction, but he proves ultimately less interested in the morality of anyone's decisions than he is in the framework that permits, or demands, those decisions in the first place. The system he calls "creditocracy" turns out debt as fast and efficiently as Detroit once did automobiles, and just as profitably.

"Financiers seek to wrap debt around every possible asset and income stream," he writes, "ensuring a flow of interest from each...[T]he tipping point for a creditocracy occurs when 'economic rents'--from debt-leveraging, capital gains, manipulation of paper claims through derivatives and other forms of financial engineering--are no longer merely supplementary sources of income, but have become the most reliable and effective instrument for the amassing of wealth and influence."

At that level of description, Ross has simply given a new name to what Rudolf Hilferding, writing a hundred years ago, called "finance capital." But what Hilferding had in mind was the merger of banking and industrial capitalism--the marriage of big money and big factories, with monopoly presiding. Creditocracy, by contrast, "goes small," insinuating itself into every nook and cranny of life. The relationship between creditor and debtor takes many different shapes, some more overt than others.

When you take out a student loan or a mortgage, your submission to the financial system is more or less deliberate, and in any event explicit. It runs deeper, and proves less purely voluntary, if you have to use credit cards in lieu of unemployment insurance. The credit relationship is much more efficiently disguised if it takes the form of an unpaid internship--the "exchange" of your time and skills for intangible and impossible-to-quantify credit" toward a future job, if you're lucky.

And if that doesn't pan out, you might end up working in one of the less desirable positions at Walmart or Taco Bell, among other corporations that banks have persuaded, Ross writes, "to pay their employees with prepaid debit cards that are only lightly regulated." The banks then "charge the users fees to make ATM withdrawals and retail purchases, along with inactivity fees for using their cards. Almost all of these are minimum or subminimum wage employees, compelled to fork over a fee to enjoy their paycheck." (The practice was described in a New York Times article a few months ago.)

TWO GREAT models of eloquence in the English language are The Book of Common Prayer and the translation of the Bible usually called the King James Version. A memorable passage that appears in both volumes crossed my mind while thinking about a couple of recent works of social criticism. (It also happens that Princeton University Press recently brought out The Book of Common Prayer: A Biography by Alan Jacobs, a professor of humanities at Baylor University, which a couple of readers have highly recommended.)

The text in question appears a couple of times in the New Testament as part of what's usually called "the Lord's Prayer." The Book of Common Prayer, the older of the two volumes, renders one line of the prayer as "Forgive us our trespasses, as we forgive those who trespass against us." The KJV rendering says, "Forgive us our debts, as we forgive our debtors."

To my ear, "trespasses" works better rhythmically, and it expresses the notion of "sin" or "offense" in a slightly more elegant manner. By contrast, "debt" or "debtor" expresses the same thought in a blunt and harsh way, and even conjures the old cartoon image of St. Peter recording good and evil deeds in a big ledger at the gates of heaven. Puzzled by the contrast, I consulted an extremely literal translation by J.N. Darby--a Victorian Biblical scholar of uncompromising severity--who suggests that "debt" is indeed what the original text says.

Around the time Darby was working on his translation, Friedrich Nietzsche fleshed out an argument about the interrelationship among guilt, debt and memory. Bringing up an atheist philosopher pretty well guarantees someone is now offended. But The Genealogy of Morals spells out in bleak and somewhat lurid terms a point left implicit in the prayer: The debtor is at the mercy of the creditor, who has the right (or at least the power) to inflict suffering--even bloody revenge--when payment is not made.

Whatever else it may signify, the brutal connotations of "debt" make forgiveness sound much more demanding and consequential than "trespass" would imply. (Awkward recollection: Learning the prayer as a little kid, I pictured God being unhappy that people were ignoring a sign on His lawn.)

HOMO ECONOMICUS never spent all that much time on moral accounting. But at least the old bourgeois virtues included restraint and a residual belief that self-interest was justified insofar as it served a larger good. The issues that concern Andrew Ross in his new book Creditocracy unfold in a world where debt itself is a kind of demigod, answerable to no higher power of any kind--and certainly not to the state.

As the example of credit-default swaps on subprime mortgages in the go-go '00s made clear, the alchemists of finance are able to create profitable investment opportunities out of the risk (i.e., the degree of likelihood) of non-repayment--making possible the creation of enormous fortunes from loans that cannot be repaid, at least not in full. That is but one link in a complex chain of debt-creation. Should the speculative bubble burst, the job of preventing economic meltdown falls to the government (which already has its own deficits, of course) at whatever risk to allocations for education, infrastructure, etc.

Add to it an average household debt that, Ross notes, grew from 43 percent of gross domestic product in 1980 to 97 percent in 2008--across three decades of stagnating wages. Throughout that period, 60 percent of income gains went to the country's wealthiest 1 percent--a trend that changed dramatically when the economic crisis hit. Since then, 95 percent of income gains have gone to that debt-creating (if not job-creating) sliver.

David J. Blacker, a professor of philosophy of education and legal studies at the University of Delaware, characterizes the situation with a simple image in The Falling Rate of Learning and the Neoliberal Endgame (Zero Books):

Imagine a casino in which you play with the house money and if you win you get to keep all the winnings to yourself, whereas if you lose, the house covers your bets. The literally astronomical public sums required to continue this arrangement for the minutest percentage of the population is the proximal cause of the squeeze on public resources. Schoolchildren, the poor, the sick, the disabled, the elderly etc., must all sacrifice so elites no longer have to undergo the risks that are officially supposed to be inherent in their role as fearless capitalist risk-takers...But genuine competition and risk are reserved "for small businesses and other little people like private and public sector employees."

Ross responds to the debt-driven status quo by challenging a whole series of moral reflexes that have traditionally accompanied debt: the feelings of obligation and culpability, of shame and implied weakness, that the prayer rendered in the King James translation take as a given. When access to socially necessary goods (particularly higher education) is restricted or undermined by an economy making debt all but inescapable for countless people, someone ought to feel guilty when students default on their loans--just not the students themselves. The next step is to call for large-scale fiscal disobedience: a social movement of millions of people pledging to default on their student loans.

On the far side of that and other radical confrontations with the debt machine, Ross conceives the possibility of morally sound, humanely responsible systems of finance, based on communitarian social forms. Not utopia, perhaps, but a long way from here.

Massive default is a strategy I find it easier to admire, or at least to daydream about, than to recommend. It is not impossible that a million people might make such a pledge. Carrying out the action is another matter--and if only a fraction see it through, the result is bound to be martyrdom of an uninspiring and ineffectual kind. In any case, I have no student debt to default on in solidarity, and calling for others to do so would be a case of telling them, "Let's you and him go fight."

LIKE CREDITOCRACY, David Blacker's book was written in the wake of Occupy Wall Street. But where Ross occasionally sounds like Pierre-Joseph Proudhon--with his vision of a mutualist society of small producers, exchanging goods and services with a new form of money that doesn't promote inequality--Blacker thinks along much more classically Marxist lines.

The predatory forms of financial speculation that led to the crisis five years ago will not be regulated out of existence, nor are they deviations or tumors growing on a fundamentally healthy economy. The casino will keep rewarding the high rollers when they win and shaking the rest of society down when they lose. Such investment in manufacture as continues to be made will need workers with skills and the capacity to adapt to technological developments--but ever fewer of them.

Most of the population will be an object for social control, rather than Schooling proper. At some level most of us sense this already, making the whole notion of "education as investment in the future" an ever more problematic principle. Blacker has written probably the gloomiest book I have read in years, but in some ways it seems like a practical one.

He is not a survivalist. He thinks pedagogy still has a role, provided it's geared to understanding the dire probabilities and finding ways to respond to them. It helps that Blacker is a sharp and forceful writer, giving his analysis something of the vividness and urgency of an Old Testament prophet delivering warnings that nobody really wants to hear.

First published in Inside Higher Ed.