Understanding the Debt Clash

The chief difficulty in a crisis, and the purpose of this blog, is to understand what's going on. A crisis is a moment of genuine indeterminacy, where the rules of the game, indeed the whole game, that were present before are no longer valid. This poses a difficult problem for research and is only worse for research meant to intervene in the historical transformations (which is the point of this blog). The challenge is not only to give an account of why one thing or another happens, but to draw lines of significance that can help us in our attempts to position ourselves facing toward a free society.

The American political clash around the debt ceiling provides an excellent example of what makes moments of crisis so difficult.

What Isn't happening:
1) America is not caught in an unsustainable debt trap due to a crash in GDP.

Unlike the sovereign debt crisis in the Eurozone, America is not swamped under a crisis level of debt. Those crises occurred because the bond markets in Europe became so scared of default that rates began to rise. Thus Greece, Ireland and now Italy have all faced skyrocketing borrowing rates that mean any budget deficit (which necessitate some borrowing) becomes compounded by deadly interest rates. This is very similar to the debt crisis of the global south we saw at the beginning of neoliberalism 20 to 30 years ago (and a chief way neoliberalism established itself globally), where the World Bank and the IMF made borrowing impossible for states that did not get behind radical privatization and free-trade programs.


While it is an anomaly, Italy's situation demonstrates very clearly why America is not caught in these kinds of crisis producing dynamics. Financial Times's investment editor (and my vote for best hair in Britain), James Mackintosh lays this out quite clearly in a recent analysis video. Both Italy and the US have comparable debts, Italy at 120% GDP and the US at just under 100% GDP, but the difference is in the interest rates they can borrow at. In the last few years Eurozone bond markets have become terrified of the less secure national economies, known as the PIIGS (Portugal, Ireland, Italy, Greece and Spain). As a result Italy now has to borrow money at 5.5% for 5 year bonds. As a matter of fact, Italy is projected to actually run a small surplus before interest, something unthinkable in the US. America, however, borrows at nearly 0% interest. The uncertainty in the equities and bond market have sent investors fleeing to US Treasury bonds as the safest bet around, plummeting US borrowing rates. This means that, in the short term, it's becoming nearly impossible for Italy to stay afloat, while the US has nothing to worry about. Certainly mounting American debt might be a problem somewhere down the line, but it's not a crisis.

2) There is no mass populist movement for government austerity.

This seems almost common sense. I have a lot of trouble imagining poor and working class folks deciding and fighting en masse for cuts to the government programs that help them get by. But this nonsense is the very image that the Tea Party and Fox News would like us to believe. Unfortunately due to the bankruptcy of American media this narrative has become fairly mainstream. There are plenty of polls that say most Americans do not support cuts to medicare, medicaid, or social security. Even without polls we only have to think back to the confusing scene during the healthcare debate when a woman passionately cried at a town hall for a Democrat to, "lay your hands off my medicare!"

That's not to say the Tea Party does not have a populist character. Their appeals to patriotism, simple financial principles, and social conservatism (to a degree) resonate with large swaths of the American population. But this, as with most populisms, has nothing to do with mass belief in the political program. Instead it seems to be out of fear and desperation. People have been unemployed for dangerous lengths of time, wealth inequality is becoming more egregious and apparent, and many of the basic social traditions like family life and religion that made all this palatable are falling apart. As Walker says the tea party does provide a coherent response to the crisis and there's a populist desire for that regardless of content.

3) There is not a popular collapse of "the social."

Here is where I might be disagreeing with Walker's analysis if he wants to locate the collapse of "the social" in mass popular consciousness. I agree that the Tea Party ideology is an extreme extension of the Thatcherite position that "there is no society," but this is a very abstract and rarefied thought. "Society" as an abstract entity rarely appears as such in popular consciousness. In Fordism it appeared largely as the state, in Liberalism it was largely national tradition. It doesn't seem like "the market" experienced under neoliberalism is any less a mode of appearance of "society" than either of these. The one distinction, and this is crucial, that the market is wholly out of our collective control. The nation is, drawing from Benedict Anderson, an imagined community to which one was a part. The state is subject to one's collective political will. The market however is like the weather, it's hopeless to hope to effect for most people. It's this hopelessness of active participation in society, of truly having any agency in society, that's still gone for most people, and it would take a great deal to change that belief.

How do we think about all this?
Right now I have no hope of giving an account of what is happening, because I don't think we're clear on what kind of account we need. It would be simple to give a journalistic/factual story for how the Tea Party rose to this position of holding the country hostage. But that wouldn't be enough. From that perspective this moment looks like a repeat of 1992, when Newt Gingrich took control of the house, with the stakes raised. But from the perspective of trying to articulate a Left response to this unique moment of crisis, this falls short.

We shouldn't be after a better account of how one thing or another happened in a crisis. All the stable lines of causality that exist in a stable form of accumulation are out the window. Most of the dominoes that were going to fall with any necessity have already fallen, and the rest is radically contingent. Will the Euro survive? Will austerity take hold? Will China become financially hegemonic as well as productively? Even these economic concerns are up for grabs, let alone the cultural and social transformations afoot.

What we need to do instead is try to judge the significance of events. Instead of asking how we got here, ask what "here" means. This means asking questions like what form of accumulation might austerity and tea party politics fit into, or what the conditions of "solution" to the crisis are. It also means that we can't always build up our understanding purely from the facts (if this were ever possible), we have to know what we're looking for. This is why I'm so curious about the responsible business practice discourse, not because it's got any traction, but because it seems to be the kind of thing that could take hold in a moment of crisis. Most importantly, this also means looking for lines of thought and action that might articulate an oppositional or emancipatory politics. It will almost always be provisional, and hypothetical. It takes a great deal of theoretical wagering, hedging and some faith. This all looks like bad science, but we're not doing science in the usual sense.

Historical significance is something that is never in fact stable and is almost always post festum. However the desire for a better world means actively attempting to intervene not simply in the world, but in history. We must find ways to do things that are historically significant. Our analysis must not simply tell us what is, but what it means for our larger struggle and semi-blind quest for justice.

The Tea Party marching toward oblivion

Will the Republican Party really go thru with it, force a national default, and cause a “huge financial calamity” for the world? A few days ago it looked like Obama — following his now well-established playbook — would give in to all the Republican demands and then give some more, effectively sabotaging his reelection, his party, and the economy in one fell swoop. The $4 trillion "grand bargain" he proposed apparently would have included significant (and economically irrational) cuts to the key social insurance programs that are now the only popular thing with which the Democrats can defend themselves. But the Republicans wouldn't bite: their one nonnegotiable demand, far more important than reducing the deficit, has all along been that the extremely wealthy must under no condition share the "shared pain" of cutting the deficit.

If Congress fails to raise the debt limit, the US government will default. This will have immediate and devastating economic consequences simply because the US will have to cut off payment on billions of dollars of obligations to Medicare, Medicaid, and Social Security recipients, education programs, military contractors, etc, etc. It could also significantly increase the government's cost of borrowing, making it that much harder to get the debt under control.

But beyond that, a US default threatens to jolt global investor confidence. On top of the daily deteriorating situation in Europe, the dangerous credit bubble in Brasil, the continuing stagnation in Japan, and uncertainty in China, a US default could send global investors into a panic. Right now the global economy is only functioning by miraculously sustaining confidence in a whole range of speculative bubbles; any jolt could bring the whole house of cards down.

Republicans don't care:

Instead, many Congressional Republicans seem to be spoiling for a fight, calculating that some level of turmoil caused by a federal default might be what it takes to give them the chance to right the nation’s fiscal ship. “I certainly think you will see some short-term volatility,” said Representative Austin Scott of Georgia, the president of the freshman class. “In the end, the sun is going to come up tomorrow.”

The ignorance on display here is shocking. This is not about protecting the interests of the wealthy — as even a right-wing economist will tell you, forcing the government to default risks tremendous damage to the interests of corporations and investors. And it's not about politics — if the nation defaults, the economic devastation that follows will make the Republicans pariahs to the voters, especially after Obama's offer of even bigger cuts than the Republicans (which would in that case rapidly be reinterpreted as a brilliant tactical maneuver).

No, this is ideology. If the Republicans bring the whole thing down, we'll look back and recognize this moment as the apotheosis of the distinctive Tea Party response to the crisis (still the only coherent response on offer thus far in the US). As I have argued, Tea Party thinking is marked, like most other forms of neoliberal subjectivity, by the incapacity to recognize the social. It is a dogmatism of the individual, which is why the thoughtless comparisons to fascism — or even to the communal racists of the civil rights era — are so misguided.

Once the social relations that found all economic transactions have been rendered invisible, the market appears as a feature of nature or some kind of neutral mediation of human activity. Under capitalism, of course, wealth is produced socially; every individual is interdependent and it's simply incoherent to try to understand the production of wealth outside a complex network of social relations. Distribution of that wealth — income — is determined by one set of those relations, most prominently the amount of bargaining power the individual can bring to bear in the market. But once society has been eliminated from the picture and the market posited as a feature of nature, one's income is easily understood as, in some unmediated sense, "earned". And we thereby come to the Tea Party's founding myth, that the individual is the source of all value.

The trope of taxes or welfare programs as government theft of the individual's earnings has been a consistent feature of neoliberal political discourse. It is not, however, merely a result of selfishness, as widely polemicized on the left. People are more selfish under neoliberalism, but that is itself a social outcome that must be explained. And beyond that, the "anti-big government" political movements — perhaps the only successful mass movements of the era — are founded not on selfishness but on a quintessentially moral intuition: it is wrong to take from those who are deserving and give to those who aren't.

In the 1980s, the Reagan Republicans marched proudly under this banner; theirs was a righteous cause filled with the youthful vigor of a true revolution. Their morality was capable of a "triumphant affirmation of itself" — they had located the source of the rot in America and now strode forth to destroy it. And in fact this liquidation of Fordist vestiges was necessary for neoliberalism to thrive.

The Tea Party is different, driven by rage and ressentiment rather than self-affirming mastery. The revolutionary offensive has run its course, the Tea Party is not its charging vanguard but the tattered remnants of its retreating army, wandering in the Russian wilderness and succumbing to gangrene (too bad we had to burn Moscow to bring them to this!). The social crisis must be explained, but without the concept of society, how can the Tea Party come to terms with the disintegration of the neoliberal project? The old scapegoats, most long vanquished, are the only option.

This has real consequences. In neoliberalism's expansionary moment, the "anti-big government" movement was linked to the dynamism of the economy, clearing obstacles like health and safety regulation that blocked business expansion, opening new realms to entrepreneurialism thru privatization, preventing any defense of labor that could have impeded increasing exploitation, and affirming the ideological basis of neoliberal inequality by trapping the underclass in penury and violence. But the same impulses, in the moment of neoliberalism's crisis, forcibly separate popular consciousness from apprehending the dynamism of the economy.

The crisis is fundamentally a failure of growth: the engine of value-creation has died. Deficits have been severely exacerbated by economic contraction and stagnation, and the massive government debts would quickly be brought under control with a renewal of robust growth. Yet for the Tea Party (and, incidentally, for most of the left) the paralysis of growth is a non-issue. The only question is how to distribute the pain of austerity so that it falls only on those who deserve it.

This in some sense reflects the stagnation of the economy — its dynamism no longer visible, it has receded from popular consciousness. Yet it also ensures continued stagnation, if not further collapse, because only a new formula for growth can end the crisis and address subsidiary issues like the deficit. The only constituency that grasps this — the neoliberal mainstream represented by people like Obama — fundamentally misunderstands the crisis and is therefore incapable of developing an adequate response.

These are the political options that stand before us: immediate collapse or gradual collapse. If we prefer another path, we'll have to find it ourselves.

Bewildered by history

At his last news conference, Ben Bernanke made a surprisingly frank admission: “We don’t have a precise read on why this slower pace of growth is persisting.”

Bernanke was announcing the end of the Fed's attempt at indirect monetary stimulus, "quantitative easing 2", despite the continuing accumulation of evidence that the expected take-off of the "recovery" is not going to materialize. Jobs and home sales are both heading in the wrong direction. Manufacturing is slowing around the world. The EU did manage to avoid a disaster it nearly brought on itself, by forcing Greece to accept measures that will continue to destroy its economy, but for that very reason the disaster has only been delayed.

Everyone keeps telling themselves that growth will begin in earnest once the "temporary" dislocations - high oil prices, fallout from the Japan earthquake, bad weather - clear up. What they don't mention is that a variety of even more terrifying shocks threaten to make these look like a spring rain: Greek default (or that of Spain, or Ireland, or Portugal), perhaps bringing down the eurozone; an American failure to extend the debt limit, setting off global finanical panic; collapse of the Chinese real estate bubble, which thru its long supply-train connections to the commodity producers of the world, could pull the entire global economy into the abyss.

Bernanke voices the confusion of the entire economic establishment: why aren't things getting better? Undoubtedly Obama and his economic team have been asking themselves the same question for some time now. After all, political cowardice can only go so far in explaining the utter failure of the administration to formulate a response to the crisis. The neoliberal mainstream has now exhausted its conceptual resources and is effectively paralyzed by indecision, leaving it vulnerable to the predations of the rightwing austerity advocates.

This bewilderment is worth exploring further. The explanation I have laid out for the continuing crisis is not particularly complicated, yet it remains unvoiced in the mainstream media, apparently outside the realm of conceptual possibility for neoliberals. The problem is that they understand market forces not as a particular kind of social relation that emerged historically to overcome the breakdown of an earlier configuration of social relations, but as a transhistorical manifestation of human nature. It is this almost metaphysical belief that grounds the universalizing impulses of the IMF, World Bank, and WTO - not the business interests of global financial players and multinational firms featured in so many left critiques. When neoliberalism was healthy, the desire to universalize its forms allowed it to continue expanding. In its crisis, the same policies now intensify its dysfunctions.

To understand this would require an appreciation of the historical constitution of human subjectivities and social structures. For the Tea Party enthusiast there is no society. But the policymaking neoliberal is different; he can produce a pale semblance of the idea of society in his mathematical models of aggregated individual choices. This approach cannot, of course, grasp the far more complex process by which society is constituted and reshaped, an approach that, unlike neoliberal models, can provide an account of how individual choices are produced. But the policymaking neoliberal's fundamental failure is elsewhere: he cannot see history.