An essay on money magic money trees, public debt, and the need to imagine post-growth systems of credit
Every month, I get a notification from the bank: your credit card payment has been received. Like many millennials, I have been in debt since I turned eighteen. It started with the loan I took out to pay for my Bachelor’s degree. Back then, UK undergraduate course fees were a relatively measly £3,250 a year – one third of what my sister had to pay when she started university a few years later – but I still finished in 2015 owing £25,000 to the Student Loans Company. During my studies, I also took out a credit card. Two, in fact, because despite working throughout those four years, and with parents who could help out every so often, I still occasionally fell short of cash for groceries, and books, and my year studying abroad, and the keyboard on my laptop that had to be replaced when a (completely broke) friend accidentally spilled coffee on it.
I had managed to pay off one of those credit cards before I moved to London a year after graduation. But there, rent was high, my salary was low, and I’d been swept to the back of the London queue for the NHS physiotherapy I’d been receiving for a back injury in Leeds – for that, I had no choice but to go private. Once again, I took out a credit card.
Last month, I got a different kind of notification: Missed Payment Alert! We haven’t received the minimum amount due for your account. It had been a very long time – years, in fact – since I’d missed a credit card payment. And at the desk of my office on campus, my stomach sank as I opened the e-mail from my bank. A £12 late payment fee. A £12 bounced payment fee. Another £12 bounced payment fee (they had tried to collect it from both the debit accounts I had set up to prevent this happening after the last time). My account had been locked. I needed to contact the customer service team.
Quickly, it became clear where the fault lay. Not with me, but with two organizations I had done work for in recent months, which had failed to deliver the payments I’d invoiced for by the time we had agreed. I try to be careful with money, and keep track of everything I spend. I log when wages and other payments come in. But it just so happens that last month, I was in the final throes of my thesis, a 30,000-word project that had consumed all my time and focus as I tried to catch up on the months lost to COVID-19. I hadn’t looked at my online statements.
This, and more, I explained to “Cynthia”, the nom de plume of the customer service agent at the other end of a chatbox. It won’t happen again, I wrote, praying she would just scratch the £36 fees and whatever black mark had appeared next to my account. I’m sorry, replied “Cynthia”. I can’t do anything about the fees. It’s the rules. If you think you have been charged unfairly, please contact the legal team on-
And she gave me a number that costs $1.47 per minute to call.
What happens if I refuse to pay my credit card? What if I just ignored the fees, told “Cynthia” to tell her boss’s boss’s boss’s boss to go fuck himself? In the immediate, probably not a lot. There is no actual debtors’ prison today to lock away those who decide to check out of the credit system.
Debt, as David Graeber teaches us1, has developed as both an individual moral imperative (a sense of duty to owe, to pay back) and a system wielded by the powerful to maintain their dominant position in society. In theory, rebelling against the moral imperative of paying my credit card bill is straightforward, if not necessarily easy. Throughout human history, individuals have turned their backs on traditions and leaders and other gods they no longer believe in, rejected ideas they deem unfair so that the new can be reborn. I can decide that personal debt is unfair; to me, it does feel unfair. How much choice did I have in my debt? If I was free all along, why are so many of my friends in exactly the same or a worse predicament? I don’t think there is anything immoral about foregoing a payment owed to one of the wealthiest institutions that has ever existed (i.e. a modern day bank) when you are struggling to pay rent on the roof over your head that they also likely have a stake in. But of course, I did pay the fees. I do pay my debts. Because this rejection – of the moral imperatives of credit and of gods – takes place within the latter notion of debt: a system enforced by the powerful few on the pauperized many to perpetuate and exacerbate the status quo. My willingness to refuse to pay my debts cannot be disembedded from the structures of (economic, police and military) power that owns my debts.
If I refuse to pay my credit card, I will not be arrested by the debtors’ police tomorrow, but my ability to enjoy life and, perhaps, even survive, in financialized capitalism would be jeopardized. I would continue to receive late fees, and my interest rate – the cost of borrowing money – would increase. My already imperilled credit score would implode. Perhaps I wouldn’t care about any of these things too much; after all, I will have opted to exist outside the system of credit, where credit scores and interest rates are meaningless. I can’t get a mortgage, or a car on finance, but hey, I can still pay rent to a landlord and ride a bike. Maybe it doesn’t matter after all.
But it won’t be long before my debt is sold to a collection agency, which will pursue my payment by (almost) any means necessary. It is very rare for individuals in the UK to end up in prison for refusing to pay common debts2, but in the United States, private debt collection agencies have the power to file lawsuits against individuals for outstanding debt. And if court summons are ignored, or if the case is lost, debt repayment becomes enforced by the law. In such situations, money is taken directly from the individual’s bank account; cars and houses and other assets can be seized. If all else fails, imprisonment is a perfectly legal option. The ACLU estimates that 77 million Americans (1 in 3) have a debt that has been turned over to a private debt collection agency, with thousands arrested and jailed each year because they owe money3. Millions more are threatened with jail. The alternative to all of this is declaring bankruptcy – stating in court that you do not have the means to repay the debts owed. But while that’s one way to get the agencies off your back, to avoid jail, it also obliterates your credit score, makes it nigh impossible to rent a place to live, and, even in the UK, diminishes your chances of finding work in a number of professions, including security, the police, and the civil service.
Seen in this way, then, debt becomes not just a moral imperative, but a means of shaping human behaviour. Life’s purpose dissolves into the pursuit of debt payments. I want a job that I find meaningful, but in the absence of one immediately available to me, I take a zero-hours contract in the warehouse of an online retail conglomerate. The conditions are worse than I expected, but at least I won’t get another late payment fee. At least I don’t lose my shot at one day taking out a mortgage. At least I won’t go to jail.
I want to get an education; I want to retrain as a nurse, since the factory where I used to work shut down. But after my credit card bill, I don’t have the money to do that. I want to eat healthier, get a gym membership, travel by train instead of flying to my brother’s graduation next month; I’m trying to go green, but it’s expensive. I would help out at the community center on weekends, if I wasn’t working two jobs to pay my mortgage.
If disobedience is the original sin, debt is the original nudge4.
During the UK’s long decade of austerity after the 2008 financial crisis, conservative politicians were wont to liken government spending decisions to those of a household (or individual). Terms like “the public purse” were thrown around in parliamentary debates, and an ideology of “balancing the budget” ruled supreme: governments could only spend what they had in the coffers, and after bailing out the banks, that wasn’t enough – cuts needed to be made, we were told, services privatized. Advocates of an idea known as Modern Monetary Theory (MMT)5,6, as well as some leftist economics commentators, have criticized the household budget metaphor for its inaccuracy and its cheap deployment as a rhetorical device used to justify cuts to services that many households rely on. As we learn in times of crisis – like the current pandemic moment and the 2008 banking collapse – and as we learn when the US embarks on expensive military invasion abroad, governments do not only spend money they have collected through taxation; they can and do employ deficit spending.
Modern Monetary Theorists suggest that certain governments have the ability to create money to cover the costs of this spending imbalance without getting into difficulty (an idea we’ll return to shortly). Governments can also borrow money to cover the gap between their income from taxation and their spending, usually by issuing bonds, which are bought by financial actors and other governments. The cost of public debt servicing has remained high ever since 2008, even in countries with relative monetary sovereignty like the United States and the UK.
It is through an understanding of the role of debt in public spending that the household budgets metaphor, as well as the MMT criticism of it, belies a crucial misunderstanding – not of the government economy, but of the household’s. Both the metaphor and the criticism assume that we, everyday citizens, determine our spending on the basis of what our income is. On the contrary, a great majority of us are in debt – with mortgages, credit cards, lien agreements and student loans, and our spending decisions are made on the basis of how much money remains after our debts have been serviced. The freedom to invest in my own or my children’s education is constrained by what I owe the bank, and how much it costs me to borrow from the bank, as well as how much income I expect to have in the future.
What emerges through this realization is a new household budget metaphor for government spending that accounts for how debt shapes decision-making. The question for both households and governments becomes: how do the risks of default, higher interest rates, or challenges accessing new debt (including to service existing debt) impede the range of options available? What power do we lose with the need to service our debts – or attempt to change their conditions? Even in the United States, where “Uncle Sam can always handle the interest payments”5, under a system of credit contingent on financial returns, we must ask: at what cost?
For all its macroeconomic truths, as well as its plausible democratic deficiencies (both highlighted in more detail elsewhere6) MMT largely does not take into consideration this political economy of public debt, which turns out, through its relationship to financial market expectations of growth, to have at least something in common with household budgets. Fiscal sociologists have long highlighted the political role of financial markets, which react to, and in this way can constrain, the decisions of democratically-elected governments. In more concrete terms, this is to say that cuts to welfare spending and the privatization of programme financing, such as the recent emergence of ‘social impact bonds’ (SIBs) in many countries, can be seen as a response to the rise of public sector debt.
For Wolfgang Streeck7, this advances not only through explicit debt conditionality, as in the case of Greece’s sovereign debt crisis, but also, and more often, through a new logic of reassuring financial actors that the state is creditworthy. In the absence of actual growth, the reduction of deficits by cuts to public programmes that don’t lead to immediately calculable returns is conjured as a means of enacting fiscal responsibility. Political manoeuvres bolster confidence that this creditworthy government will not be replaced by a fiscally irresponsible government at the next election; welfare programmes slashed under the guise of austerity are also restructured to devolve accountability for the unpopularity of the cuts. Laws are changed: the Health Minister’s responsibility to provide universal health care to the population becomes one of promoting universal health care, as happened in the United Kingdom in 2012. And all the while, the cost of servicing debt continues to grow. But hey, at least the government still has access to new debt to pay for it.
The mechanisms of government debt are very different to those underpinning the debt you and I take out from the bank. Governments issue debt securities, called bonds (or gilts in the UK), and a privileged group of pension funds, public funds, banks and other institutions, as well as foreign governments, essentially bid for those bonds. The bonds issued by governments like the UK, Germany and China are all viewed as relatively “safe” investments by bond buyers, with the United States (currently) viewed as the safest of safe havens. The “return” on government bonds (public debt) is usually far lower than on private sector securities – but these are also much riskier purchases. Nonetheless, government bond buyers do expect to profit from their purchase – and trade this expectation through secondary markets.
At first, the idea that buyers of debt (creditors) want to be compensated for providing credit feels intuitive. After all, why would a stranger lend someone else money if there wasn’t anything in it for them? But the implications of needing to pay back more than you borrow are not so straightforward: borrowed money is paid for with (the promise of) growth, with the increasingly less popular alternative being to cut spending elsewhere. This is true at both the level of governments and of individuals (or households). During the current COVID-19 induced crisis, government deficits are justified on the basis that they will stimulate the economy: we will rescue airlines because they account for 4.5% of GDP. I will take out a student loan to pay for a degree because university graduates earn more money in the long-term.
But what if not everything we want to do – in both democratic society, and in our households – creates a profit? What if, in fact, the pursuit of growth is at odds with our goals? How do we pay for the things for which there is no easily calculable return on investment? What might debt look like in a world with neither spending cuts nor growth?
I am 27 years old, and there is no sensible calculation that suggests the current systems of pension provision that exist across Europe will enable me and the rest of my generation to live a comfortable old age. This is a truth that most people are not willing to face up to, but one we urgently need to. Pension systems rely on growth in both the real economy and financial markets. In an age of stagnant productivity and a ratio of tax-paying workers to retirees, this model of intergenerational dependency is unsustainable.
The alternative models of retirement that are incumbent on us to develop will require us to rethink and restructure care, labour, housing and mobility; this is the only future that most of us alive today can hope for. The development and implementation of these alternative and sustainable models of retirement will be costly – an Old People’s New Deal, if you will. But, though transformative and life-improving, we should not expect a return on the investment in the narrow sense of the word. Maybe there is no growth. Maybe what motivates us instead is the belief that everyone – us, and our children, as well as our parents – deserves a comfortable and fulfilling old age. Maybe, in pursuing an Old People’s New Deal, we also prevent the collapse of existing pension funds, but that is not the same as the active pursuit of growth to repay the costs of the debt we assumed to pay for it.
Under the current systems of credit, no government could undertake such an ambitious and costly but necessary feat. This same challenge looms large over our hot summers and melting ice caps as we call for governments to spend its way out of our collective climate breakdown. Perhaps there are emerging markets in innovative renewable energy sources, the possibility of new jobs for refurbishing homes to withstand freezing winters and monsoon summers. But perhaps there is no profit to be made in conserving the dens of polar bears. Perhaps no bank will see a return if the village of Tebunginako is saved from rising sea levels. Perhaps there are things that growth-contingent debt cannot buy, but that we think are worth pursuing nonetheless?
Contingent upon growth, today’s credit systems exist as a vehicle for capital accumulation. The logic of growth thus underpins not only the private institutions and banks but also the governments and pension funds that own our public as well as our personal debt. Debt-contingent credit constrains both our political choices – why we became indebted – as well as our behaviour and options once we are in debt.
What might an alternative system of credit that does not rely on the logic of growth look like?
While not advocated as an alternative to growth, MMT proposes that for public debt, monetarily sovereign countries could simply “strip markets of any influence over the interest rates on government bonds”5. With interest rates capped at zero, or thereabouts, the costs of borrowing would be negligible. In theory, this may work in the United States, at least while the rest of the world is on fire and it maintains its position as the global lender of last resort. But as in other relatively monetary sovereign countries, bond buyers and their secondary markets are still always looking for the best investment, balancing risk with returns. As the COVID-19 pandemic unfurled across the globe, investors rushed to accrue not only US Treasury bonds, but also Chinese government bonds at unprecedented levels. Whether the US will be able to maintain the ability to sell debt on terms so favourable to itself remains to be seen; but given the scale of the country’s public debt, which never recovered after 2008, it is perhaps unlikely the Treasury will risk or have the ability to cap interest rates at zero and monetize debt for perpetuity. The problem is not with debt – something the idea of post-growth credit agrees with – but with who owns the debt, and what they expect in return.
With that in mind, we might consider bringing banks and other financial institutions, including pensions, into public ownership as a means of socializing debt. This would perhaps be the most obvious way to ensure that the terms of government borrowing are not contingent on existing metrics of growth, but instead on climate sustainability, individual health, collective joy and community fulfilment. At a local level, Community Wealth Funds, rather than banks, as have been established in the United States and advocated elsewhere, could provide non-extractive lending to projects that support community needs8. And for households, for individuals, perhaps we might look back to the cooperative not-for-profit credit unions that once served communities throughout Europe. In an era when so many young people who might benefit from such cooperative organizations are constantly on the move, transitioning between workplaces and cities every few months, perhaps credit union structures could be evolved to support trade union members, or even groups of friends, to lend and borrow digitally.
Like “Cynthia”, debt does not have a face. And behind what it commands of us is a matrix of rules that ensures growth reigns supreme. As the pandemic continues to wreak havoc, as the planet burns, and as whole generations are left wondering how we will be cared for when we are old, perhaps now is the time to ask why the conditions of debt are austerity or growth. Perhaps now is the moment to rethink who owns the debt.
3. ACLU. A Pound of Flesh: The Criminalization of Private Debt. American Civil Liberties Union; 2018. Accessed July 23, 2020. https://www.aclu.org/issues/smart-justice/mass-incarceration/criminalization-private-debt
7. Streeck W. Buying Time: The Delayed Crisis of Democratic Capitalism. 2nd Edition. Verso; 2017.8. Detroit Community Wealth Fund. Non-Extracting Lending. Published 2020. Accessed July 24, 2020. https://www.detroitcommunitywealth.org/non-extractive-lending