So Saturday’s anti-austerity marches in London and Glasgow were just the latest of a continuing campaign. Labour leadership hopeful Jeremy Corbyn and comedian-come-revolutionary Russell Brand addressed the assembled hordes in the capital. But without leverage – a debt rebellion – none of this will make a jot of difference.
Theirs is a just cause. Austerity not only disproportionately hurts the poor, but it also very rarely works during a recession. What’s more, although austerity does not always inhibit economic growth, the benefits of growth are overwhelmingly concentrated at the top where income is unequally distributed.
Income inequality has been steadily growing in the UK since the mid-1980s, and so the poor and middle classes are likely to feel the pain but few of the rewards.
But their challenge is that traditional forms of protest have lost their effectiveness. As the third, 2m-strong anti-Iraq war demonstration made painfully clear in 2003, marching might foster a satisfying sense of solidarity and shared experience, but in today’s world it is little more than an expression of futile rage. Marching changes nothing.
However, by sticking to their template for public protest, the anti-austerity movement is overlooking some very potent sources of power, a point clearly demonstrated by Russell Brand’s appearance on the Keiser Report in April.
Individual direct action
The show’s host asked Brand to identify the “chink in the armour” that could be used to rein in the financial elite and its austerity agenda. His answer? “Individual direct action, collective direct action, co-operation, collectivisation and … your [Max Keiser’s] alternate currency model.” Brand might be right on all counts, but such words will hardly have the neoliberals quaking in their boots.
Like many of those opposed to the spiteful thrust of government policy, Brand is strong on outrage but relatively light on leveraging change. Few may have sympathies with the bankers, or a political establishment set on penalising the poor, but the narrative is incomplete.
Part of the challenge is that we are ruled by a political system that simply doesn’t care. Our leaders don’t care that austerity pushes the most vulnerable among us towards hunger and destitution, or that it gradually dispossesses the middle classes. They don’t care, even less admit, that austerity returned Britain to recession just as its post-crash recovery was gathering steam. And, in their heart of hearts, does anyone really believe that Saturday’s demonstrations would ever inspire a revelatory transformation for the likes of George Osborne and Iain Duncan Smith? No, neither do I.
Essentially, our political and economic system is psychopathic. Britain is becoming more unequal, and elites are less likely to empathise with their victims as they become more remote. Hence change is not achievable by debate alone. Psychopathic power makes no concession without a genuine threat. It’s maximising leverage that will bring change, not halting the traffic and shouting slogans, no matter how justifiable or coherent the message.
Debt: the hidden key
On this front, opponents to austerity and the whole neoliberal enterprise have considerably more power than they think. There are chinks in the armour, and debt is among the most potent. Debt might not seem a particularly promising line of attack at first glance, but once the rationale is understood, the system’s vulnerability becomes clear. Indeed, the sheer scope of its power might scare even the most ardent campaigners.
By retreating from such basic issues of fairness and social control as debt, the political left has ceded much of its relevance. An honest and uncompromising debate on what debt is, where it comes from and the way our financial system has used it as a weapon of control has the potential to widen the anti-austerity campaign well beyond the usual suspects.
Put simply, this is the threat: if you owe your bank £1,000, you have a problem. Owe them £100bn and the bank has a problem. An organised debt strike is a potentially powerful form of leverage because it highlights our passive consent to an elite’s parasitic extraction of wealth. Debt cancellation also has surprisingly strong moral, historical and economic foundations. Thanks to the misleading narratives around debt, most people see it as a weapon of exclusive benefit to the banks.
Debt dominates the British economy. Taken together, government, corporate and household debts come to 252% of GDP. But while ballooning government debt is constantly highlighted as one of our great existential threats, household debt – which has more than quadrupled since the early 1990s to reach £1,390bn in 2013 – is the silently-ticking time-bomb.
Debt’s emotional power
Debt is central to so many people’s hopes and fears. More than any other economic concept, it commands an almost primeval moral and emotional power that encompasses everything from the desire for independence and status, to fears about missing out, of dependancy and a sense of obligation to the lender.
Property reinforces that power: for many, keeping their place on the housing ladder at all costs is such an obsession that it is a form of self-imposed slavery. Yet the central power of debt is derived from commonly-held falsehoods about what money is and where it comes from.
The notes and coins in our pockets, for instance, give the impression that money is a public commodity controlled by the state for everyone’s benefit. But notes and coins only make up 3% of the money in circulation. Commercial banks create the rest out of thin air by tapping numbers into a computer when they issue loans.
The implications of this are far-reaching. To start with, the commercial banks don’t create the interest on their loans, so if the total interest bill exceeds the stock of public money in circulation – which it will if the rate exceeds 3.1% – then the banks are staking a claim on money that doesn’t exist.
Interest payments are spread over time, but the money still has to be found, and this is a major driver of economic growth – which is environmentally ruinous as well as of unequal benefit – and the reliance on yet more debt. As debt-money is simply deleted when a loan is repaid, our economy is completely debt dependant.
For the banks, deriving riches from money they don’t even have is a fantastic business model that allows them to extract £192m in interest from the UK economy every single day. But for the wider economy, this is little more than an economic rent, and one that largely transfers wealth and jobs from the periphery to the centre, London’s gilded circle. This is because only 8% of the banks’ loan portfolio is invested in productive assets, thus starving the wider economy of the means to renew itself. It’s a system that helps to explain why many people depend on welfare benefits, and why austerity is so unfair.
International comparisons suggest that the larger and more overbearing a financial system, the lower a nation’s productivity and prosperity will be. Given that his is the party of capital, it should be no surprise that George Osborne has barely begun to talk about Britain’s productivity gap, let alone address how the financial sector impedes UK economic performance.
But inequality is not static. Ever-increasing inequality is a dynamic process that’s central to a debt-money system such as ours because, by definition, every pound of one person’s net wealth is matched by a pound of net debt held elsewhere. In this way, the concentration of wealth among a small elite is directly bought by distributing an equivalent debt among everyone else, a disparity continually widened by interest payments.
History shows us that unequal concentrations of wealth and debt are not static in a commodity-based money system that used gold or silver coins, for instance. Debt tends to rise beyond an economy’s ability to pay whatever money system is in place. However, debt-money systems accelerate the process. In other words, unless we wipe the slate clean from time to time, or can create an explosive period of economic growth, the misery of debt deflation and dependancy becomes inevitable.
Of course, it should be expected that any debt jubilee campaign will be immediately branded as immoral and irresponsible and likely to collapse the entire financial system. History tells a rather different story. In antiquity, not only did the debt jubilees boost economies to everyone’s benefit, but were instrumental in helping many societies survive for as long as they did.
We don’t, however, have to look that far back to see the power of debt forgiveness. Post-war Germany enjoyed an ‘economic miracle’ as a direct result of the 1953 London Debt Agreement, in which half its liabilities – including personal debts – were cancelled. Interestingly, that deal reflected an explicit acceptance that excessive debts are a debilitating economic burden for which debtors alone cannot be held responsible.
Indeed, its a central tenet of capitalism that interest rates reflect the lender’s risks. Blaming only the debtor is penal and unfair. As debt cancellation also shows, it is also economically counter-productive.
But a close inspection of today’s debts highlights an even more explosive issue. Some argue that today’s household debt and credit agreements might not even satisfy the laws of contract and, specifically, the rules of consideration. To be accepted as a consideration, the stake of each party must be real, tangible and have value.
Also, the commitments of both the promisor (the borrower) and the promisee (the lender) must not be ambiguous or fraudulent. The mere fact that the two reach an agreement does not itself constitute a legally-enforceable contract.
In the case Currie v Misa in 1875, consideration was defined as “some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”. In other words, the promisee accepts a forbearance in providing the promisor with a benefit or right.
But if the banks aren’t actually lending anything, what exactly is their detriment or forbearance? What consideration is it that the banks are bringing to the party? Meanwhile, why do we still refer to the banks ‘lenders’ at all?
Then there’s the question of how most banks use their customers’ promises to pay. Rather than merely enjoy the interest, the banks have commonly pooled these ‘debt assets’ into securities and sell them as bonds, though the government’s Funding for Lending scheme has at least temporarily suppressed this market. However, it still raises two main issues: one concerning the bank-customer relationship and the other a potentially even greater, global economic time-bomb.
On the first, while customers might continue making mortgage repayments to their high street bank, it’s possible their repayments are actually ending up with a financial institution thousands of miles away. In fact, some banks have even taken for themselves a power of attorney so they can, on their customers’ behalf, ‘execute’ the processes necessary to securitise their debts. References to this process can sometimes be found buried away in their mortgage terms and conditions. Presumably, that’s the banks’ nod to transparency.
In addition to the lack of transparency, repackaged debt is a crucial element of the market in derivatives. The fraudulent sale by US banks of derivatives as triple-A rated securities in the sub-prime mortgage scandal was, if you remember, the spark for the 2007 credit crunch. Just three short months ago, financial regulators around the world were concerned about the apparent risks of another credit crunch hitting the bond market.
The instability of the financial markets, even without a threatened debt strike, shows just how much leverage debtors potentially have. And challenging debt is a surprisingly easy process. Under consumer credit legislation, borrowers can write to their bank to ascertain their debts’ legal status – such as who owns their promissory note. Even if their loans and mortgages are legally rock solid, simply having the conversation has the potential to unmask the deceit that gives debt its moral power.
And herein lies the real point: on a philosophical level, the economic system is simply a means by which we deliver on our promises and obligations to each other. What is notable today is that the promises and obligations increasingly go one way: from the poor and middle classes to those at the top – the elite. And all the indications are that, in today’s age of low-growth, this process will continue.
The state is one of the few means of distributing wealth downwards, though it is already more than counterbalanced by extraction of wealth upwards. Reducing the state is simply a way for the elite to deny its obligations to those below it. Many on the left might see this as a uniquely capitalist problem, but it’s actually the result of an elite’s overwhelming power.
Osborne has been described as the most political chancellor for generations, and with good reason: economics is obviously not his top priority. Instead, his agenda is about the removal and/or subordination of democratic alternatives to corporate power; to remove the state as provider and protector and deliver the British nation’s complete dependancy on corporate interests.
Austerity is his primary means of achieving this. TTIP, the secretly-negotiated free-trade agreement that would shift sovereignty from nation states to multinationals, is this process writ large.
Debt is central to all these equations. While it can oil the economic wheels, debt also becomes a form of slavery, wealth extraction and social control. Indeed, it’s the rationale for the whole austerity drive; in which an elite enforces its claims on wider society regardless of the costs and misery it causes, while denying as far as possibly any countervailing claims.
Sieze the nettle
Money, wealth and status are merely social constructions, and their distribution are becoming ever more focused on a small group of people, both in Britain and globally. Yet those at the top could not enjoying their envious position without the labour, spending power and consent of those below it. It may not like the fact, but the elite is in many ways as dependant on us as we are on it.
By failing to understand and explain our interconnectedness, the entire political system has remained silence on increasingly thorny issues, such as debt. By changing this, the left can re-establish its relevance. What’s more, seizing the debt nettle now may not only help to redefine the balance of power, but can help to lift an unnecessary burden of misery from millions of people. Debt is a major political opportunity for the left. Whether they’ll have the courage to take it is another matter entirely.
Peter Batt is the author of Psychopath Economics, a four-part book on belief systems, the logic of economic power and consumption, and their impact on the rise and fall of societies. Part 1 – The Bull and The Bewildered Herd – has been published via Smashwords.