A Concise History of Modern Debt

"You Must Respect my Authority!"

I've never seen a better summary of how we got here and what it means.

The debt crisis confronting the Obama administration is the product of war and taxes. There is little dispute that the origins of the crisis predate Obama’s election. When George W. Bush took office in 2001, the US had a $2 trillion budget surplus. Many believed that if the country merely continued on the path set by Bill Clinton, the national debt, then $5.7 trillion, would be eliminated by the end of the decade. Bush chose a different way. He cut taxes, reducing revenues by $1.8 trillion. He declared a general war on terror and waged two specific wars. Financed entirely by borrowing – a first in American history – the wars and related increases in defence spending added $1.5 trillion to the debt. The financial crisis and ensuing recession further reduced revenues. By the time he left office, Bush had squandered the surplus and nearly doubled the size of the debt, adding more to it than any president in US history.

While I don't believe we have a "debt crisis," we clearly have a politically-driven crisis that is exacerbating the weakness in the economy.

If there’s a master text for this moment, it’s Marx’s Eighteenth Brumaire. Not the over-cited first time as tragedy, second time as farce line, but his astonishingly prescient analysis of the reactionary behaviour of the French peasantry during the Bourbon and July monarchies. Though the 1789 Revolution and Napoleon had liberated the peasants from their landlords, the next generation of peasants was left to confront the agricultural market from small private holdings that could not sustain them. They no longer had to pay their feudal dues, but now they had to pay their mortgages and taxes to a state that seemed to do little for them. What the state did provide, under Napoleon III, was imperial spectacle. That wasn’t nothing, as Marx noted, for in and through the army the peasants were ‘transformed into heroes, defending their new possessions against the outer world, glorifying their recently won nationality, plundering and revolutionising the world. The uniform was their own state dress; war was their poetry.’ This Marx called ‘the imperialism of the peasant class’.

In Marx’s analysis we see the populist underbelly of the debt crisis, indeed of the last four decades of the right-wing tax revolt, from Howard Jarvis’s Proposition 13 of 1978, which destroyed California’s finances by putting strict limits on property tax increases, to the Tea Party. Liberals often have a difficult time making sense of these movements – don’t taxes support good things? – because they don’t see how little the American state directly provides to its citizens, relative to their economic circumstances. Since the early 1970s, with a few brief exceptions, workers’ wages have stagnated. What has the state offered in response? Public transport is virtually non-existent. Even with Obama’s reforms, the state does not provide healthcare or insurance to most people. Outside wealthy communities, state schools often fail to deliver a real education. In such circumstances, is it any wonder ordinary citizens want their taxes cut? That at least is change they can believe in.

And here Democrats like Obama and his defenders, who bemoan the stranglehold of the Tea Party on American politics, have only themselves to blame. For decades, Democrats have collaborated in stripping back the American state in the vain hope that the market would work its magic. For a time it did, though mostly through debt; workers could compensate for stagnating wages with easy credit and low-interest mortgages. Now the debt’s due to be repaid, and wages – if people are lucky enough to be working – aren’t enough to cover the bills. The only thing that’s left for them is cutting taxes. And the imperialism of the peasants.