screw (down) the debt- neoliberalism and the politics of austerity

8/8/2019 Screw (Down) the Debt- Neoliberalism and the Politics of Austerity

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Table of Contents

....... 1Screw (Down) the Debt: Neoliberalism and the Politics of Austerity

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Screw (Down) the Debt: Neoliberalism and the Politics

of Austerity

BySuhail Malikp { margin-bottom: 0.21cm; }

Under the name of austerity many governments are currently looking to drastically reduce public

expenditure and impose tax increases to cover a rapidly and dramatically increased state debt. Beyondtheir attack on those who most call upon state support what is so galling about these measures is thatthis debt was drawn in order to channel credit into the banking system as it took huge hits in the2007-09 credit crunch, a falling apart of its credit structures - or deleveraging - that threatened the verysolvency of financial corporation of all sizes. The reasoning and justification for austerity is that such asharp contraction of crecit would have ceased up commerce, leading to massive job losses andreduction in consumption, in turn resulting in the destructive effects of severe global recession if notdepression (though such commercial credit has not in fact been exactly forthcoming, the bankschanneling the supporting funds into financial instruments generating high enough rates of return toensure a profitability that will keep their shareholders and managers happy). The size, imponderabilityand systematic importance of national debt at these scales, necessary to maintain the credit to keepthe economy going, gives it weight and urgency - a momentum - that assures its political and

economic priority, thinly cloaking the ideological cutback of the state in favour of contracting out ofpublic services to the private sector to the great benefit of those companys profit margins anddisadvantage of those who work for them.

But as slogans such as We Wont Pay For Your Crisis!, Pay, You Fuckers!, and No Profit On OurFuture make clear, in addition to the attacks on public provision austerity is but another name for thetransfer of debt from the international finance sector to national populations, with governments actingas the transmission mechanism not just for the old banking adage to privatise the profits and socializethe losses but also for the legality and putative legitimacy of such a transfer. As well as rightlyblaming the finance sector as historical cause for the crisis, protests against austerity therefore alsoincisively highlight the disservice that, in their subordination to the mechanisms and power ofinternational finance, governments now do to their own populations (who, through representationalprocedures, are putatively supposed to own these very governments). The post-war settlement ofsocial security and state arbitration of the labour-capital relation prevalent in Western Europe for thelast half-century or so is stripped further back as populations are now exploited to cover the costs of afinancial sector that holds states to ransom with its own power to close down business by destroyingits basic fiscal condition: credit.

In addition to the individual and sectorial politics of the current protests (respectively, massivepersonal debt burdens and the privatization - which is to say creditization - of what remains of publicservices such as education, health, care, etc.), the implementation or not of austerity then involves asystematic politics of debt. Systematic because, contrary to assertions that the credit crisis marks theend of neo-liberalism, austerity as the means of recovery from the financial credit-crisis turnedpublic debt-crisis will instead inaugurate a further diversification of capital accumulation for thealready wealthy, entrenching neo-liberalism mechanisms and conditions of one-sided capitalaccumulation. That is, austerity is not just the cutback of the state but the entrenchment ofneo-liberalism (as the acceleration of capital accumulation on the basis of leveraged credit revenue).

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neo-liberal principles - cannot increase tax levels easily without causing further recessionary effects orcompensating through state expenditure. Furthermore, increased taxation income does not necessarilymean increasing tax levels: tax policy in the US and the UK since the 1980s has consistently striven toreduce the tax rate for the wealthiest sectors of the population, proposing that lower taxes makes suchhigh earners more likely to remain residents and pay taxes rather than leave their countries or findloopholes, thereby increasing overall revenue from this notoriously tax-shy sector. Further, given theseincentives, the very wealthy are supposed to invest their earnings into the broader economy andstabilize production through their marked consumption, both of which serve to generating growth. The

rapid growth of overall net income of the super-rich has however, and not entirely unpredictably,tended to be invested not in domestic production but in emerging economies and finance sector wherethe levels of return are much higher, generating yet further returns for the wealthy themselves.

(ii) Economic expansion: This route requires pump-priming the economy either by backing privatesector creditors or through its direct financing. Without current surpluses both routes requireincreasing national debt levels or, if undertaken by central banks, increasing money supply(Quantitative Easing). But the ability to raise national debt to maintain open-enough credit andliquidity are limited by the conditions under which debt is raised in the first place through bondmarkets, where governments like private corporations regularly borrow money by selling

interest-bearing bills. (The next few lines schematize the conditions bond markets impose onborrowing levels; readers familiar with this may skip to the last paragraph of this section.) As withother borrowing the basic parameter of these markets is that the risk of lending is offset by higherinterest: high-risk borrowing needs higher interest rates on repayment to attract and secure lendersdespite the various disinclinations against the chances of default, long-term risk, etc.. Such risksreduce the cost of the bonds and therefore the amount of money that can be raised from them. If therisks of lending are perceived to be too great funds cannot be raised on the bond markets and statescannot pay back their existing bonds or, in expectionally bad cases (when interest is about 12 percentof GDP), even the interest on them. Commercially, this is bankruptcy and insolvency; for states it issovereign debt default. Since governments are usually considered to be the safest bet of all on bondmarkets because they can always raise revenue by increasing taxes, sovereign debt default is not only aproblem for the states whose borrowing capability is at risk; it is also a fundamental risk for the bondmarkets themselves, and therefore for the entire state-commercial credit system.

Two often inter-linked routes to the risk of sovereign debt default are chronic debt overhang, whenlong-term state borrowing is too large for confidence in its repayment to be maintained, and a rapidescalation in borrowing, when state income is not high enough to cover the increased borrowing costs.In either case borrowing becomes difficult to impossible, and not only is it then impossible to securecommercial credit systems or boost economic activity but the very circulation of credit in the bondmarkets themselves becomes fragile. In order to re-assure these markets of their continued viabilityover the duration of the period of the bond, and to support the continued operation of that market itself,governments must ensure that the debt to GDP ratio is reduced to risk levels acceptable to the bondmarkets. Governments pressing for austerity measures therefore insist that the high levels of nationaldebt (more accurately, national debt to GDP ratios, which depends on the earnings from production ofthe particular national economy) require urgent attention because of the risk of default anxiety in thebond markets. This is exactly what has taken place in the large-scale bail-out of the finance sector -dramatically so with Greece and Ireland recently, where the flight from those states bonds wasmitigated by exceptional intervention from the European Central Bank in conjunction with IMFintervention to provide loans to those economies with the added condition that they not raise capital

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from the bonds markets.

Even if sovereign debt default is not such a great risk for countries such as the UK that have strongenough production and consumption sectors to secure high levels of borrowing, increased debt burdenscan nonetheless be politically mobilized to justify austerity measures. For example, the repayment ofdebt interest alone, never mind the borrowed capital, for the UK in 2010 is 30 billion (though this isonly 2 percent of GDP) and is predicted to climb to 60 billion by 2015 (3.3 percent GDP) which, ascurrent costs to be paid by future income, is revenue that does not go to direct re-investment intoproductive capital, social expenditure or wages, and is taken to be a straightforward loss of productivecapacity. The slight of hand in this argument is that this interest repayment is what maintains currentproduction and investment, and does so at relatively low levels interest levels in terms of GDP.

Given these operational conditions for where and how national credit is raised, its worth highlightingthat while the recent rapid increases in national debt and interest repayment levels have been made inorder to keep the highly transnationalized financial sector solvent - for example, by sustaining creditand liquidity in the economy, re-assuring stock markets and their shareholders of their continued

viability as going concerns and, as in the case of Ireland, insuring of bank deposits to prevent a bankrun - this life-support of transnational finance at a time of its crises not only requires states to raisecapital at higher cost to themselves but those very bonds are themselves subject to much speculativetrading and leveraging by the finance sector, which therefore profits well from the increased cost ofborrowing generated by the efforts to stabilize that system.

(iii) Cutbacks: The reduction of government expenditure is the most overt attack on public services,usually with the most destructive effects on the poorest. Cutbacks to public services such as thereduction or closure of public facilities, either directly through outsourcing or indirectly as providersof the next nearest alternative (the shopping centre rather than the park, the bookstore rather than the

library), pushing social or non-work time and spaces into the hands of private ownership and theirfacility charges, caps on housing subsidy, unemployment payments, disability benefits, and so on, allserve to put what were once public responsibilities and interests into the private sector whoseownership extends not just to the material facility, service or entitlement (the park, the building, thebenefit) but also to the right to access it, the requirement to generate a profit. As such, not only docutbacks in public services corrode the practical and material conditions of what and how a public isconstituted, making it ever more distant and idealized, it also redistributes and deepens the dependencebetween the poorest and the private sector. (What is politically astute and disturbing about the logicput forward for privatizing tuition costs - why should the hard-working poor subsidize those who willprivilege in status and earnings from a Higher Education? - is not only the defense it presents againstthe very exclusion of poorer people from HE but that it makes the case for the destruction of publicfunding into an argument by and for the poor precisely when it will be only those with a large enough

capital base - definitionally, not the poor - who will be able to take advantage of such provision in therevised funding structures.)

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(iv) Extending Private Debt: The consumption boom of the decade to 2008 was premised on themassive increases in private debt mortgages and, to a lesser but still significant extent, the escalatingindividual and aggregate debts of private consumption organized through low-interest loans, creditcards, and so on. The rapid growth of financialization of that period - capital accumulation throughownership titles rather than production or services - depended not only on an increase of indebtednesswith interest-bearing repayment but also on the acceleration of accumulation by the fabrication of newfinancial instruments leveraging that initial income (what is called securitization: high levels ofspeculative investment backed with the real money earned from interest repayment). Interest bearing

loans - debt - generated a supposedly reliable revenue stream without depredation of the capital (otherthan inflation, which was at exceptionally low levels during the period). That is, debt interest became aconstitutive feature of economic growth, accumulation itself being organized increasingly throughfinancialization.

If neo-liberalism is often taken to be a free-market ideology it practically amounts to just thisescalation of private debt as primary source for the rapidly escalating leveraging of the finance sector.In the US, which has most shaped its economy to this model, with global consequences, this escalationtook off markedly with Reaganism in the 1980s, was consolidated through the transfer of debt fromthe state to the private sector in the 1990s - compensating for the Clinton administrations reversing of

government debt into surpluses by shrinking public expenditure through shutting down Federal publicservices and shrinking its consumption - and peaking in the 2000s with the speculative transformationof private debt into speculative credit through house-price inflation, fuelled by chronically low interestrates set by Greenspans Federal Reserve coupled to low inflation rates thanks to the cheap prices ofimported consumer goods enabled by very low Chinese labour costs.

Incurred upon housing and consumption, such debts and interest revenues presumed earnings tofacilitate a minimal enough repayment of interest and charges to ensure non-default. However, thetrick of financialization can be played out at the literally domestic level and the revenue from whichprivate debt repayments are made do not have to take place through labour or other production. Thehouse-price boom to 2008 allowed those with mortgages to take out loans against the added value ofthe property without any productive expenditure, generating a form of income predicated on the future

disposal of the house at a higher price than it was brought for. But such income is of course only anincrease in debt and an increase in interest earnings by the lender, allowing the creditor to increase itsrevenue stream and increase the revenue available for further leveraging. This base revenue is whatbecame systematically insecure in 2007-08 when the volume of mortgage defaults reached a level highenough to not only cause the downfall of several lenders but to make the highly leveraged basicdebt-incurred income susceptible to doubt as to its viability, resulting in a rapid deleveraging acrossthe finance sector. Given the degree and complexity of leveraging typifying finance since themid-1990s, doubts on the security of most financial products could not be contained or sterilizedresulting in the withdrawal of confidence in commercial lending, and so a rapid credit contractionthreatening international insolvency.

The credit crisis and the need for new sources for securitization

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What remains a cause for concern for speculative neo-liberalism after the unraveling of financialleveraging is how to maintain securitizable income when earnings-based debt - mortgages, creditcards, domestic consumption, etc - can no longer be ensured and presents too great a risk of default. Itis here that governments withdrawal of state support for non-labour activities such as education,health, retirement and so on - that is, austerity - takes its role in diversifying the revenue stream forfinancial securitization. As much as bond markets may be re-assured that national debt and its interest

can again be financed by governments, so austerity measures that require schoolchildren or studentsand their parents, the elderly and their children, the unwell and their relatives, the unemployed andthose who rely upon them - in short, non-earning non-labour - to finance (the term is exactly right)their provision through loans and incurring debt, providing a more or less direct source of primaryrevenue for leveraging.

That source of securitization is by now familiar: it is a lesson (not) learnt from the extension of thelending practices of credit-card companies and loan-sharks, as well as for lenders of sub-primemortgages. The point here is that such basic income generation for financialization now takes place notjust on revenue predicated on earnings through labour or other credit generation at smaller or larger

scales, but also on the basis of those who have no earnings yet or any more, of those who will earn(schoolchildren and students) or have earned (retirees, the unemployed), of non-labour. As such,austerity measures implemented by governments seek to support financial leveraging not only byrestoring confidence to the bond markets but also by securing and officialising new non-earningrevenue for it.

In this respect the politics of the current protest against austerity are not just a politics of who pays fora historical and systematic near-insolvency of the finance sector, but a politics of the continuation ofthe system of financialization of not just present but also future and past earnings. To be clear: not justthe future and past earnings of those who can earn (the mortgage you can take out once you have an

income that enables you to have one) but on coming-to-have or having-had the ability of earning at all(schooling at all levels, retirement) and even of not-being-able-to-earn. The credit crunch andsubsequent efforts to salvage the economy through pumping liquidity into the system and imposingausterity measures configure non-earning as a new primary revenue for finance to leverage and extractspeculative earnings. Austerity is another turn of the screw of debt-based revenue for financialleveraging.

As noted, the process is not new in itself, nor is its commonality: it replays the debt-transfermechanisms of the late 1990s and 2000s based at that time on the boom in house prices and theincome debt-driven stream of householders drawing loans on their mortgages and/or those of working

age drawing on their pension schemes, as well as the finance sectors increasing need to expand creditwhose earnings it could rapidly leverage for speculative gain. What is perhaps new and certainlyexacerbated in the move to securitize non-earnings is that the income stream is entirely prospectiveand retrospective, taking place on what which is without-earning never mind profit-making. Whatitself earns nothing turns then into a speculative undertaking whose worth is that of purely futureearnings. There is no chance of not being indebted and paying interest on it, even if nothing is (yet orstill) being earned to pay that debt back and its interest. Austerity is not then only a matter ofindividual and sectorial indebtedness and privatization but of systemic conditions of capital

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accumulation its politics (which is also why the United States, which already arrived at this pointabout a decade ago, cannot take this route out of the crisis).

The political opportunity of austerity

In short, (i) austerity measures will implement the indebting of non-earning; (ii) austerity is anopportunity for neo-liberalism to deepen and re-secure - refinance - its credit base by securing debtinto non-earning sectors, from not-yet or no-longer labour (childhood, study, retirement,non-economic sectors). This in order for non-earning activities to repay the credit that will haveenabled them to take place at all. What is at issue is not the control or ruling in or out what happensoutside of earning (it is not a matter of content) but that whatever kind of non-earning it is, it is asource of revenue for financialization through the interest-bearing loan it will require if it is to beundertaken (including unemployment). The financialization of that whose worth is not capitalization,of a future distinct from earning, is then predicated on the securitization of non-earning, ex-labour.Furthermore, what ex-labour could earn will not be for productivity or its own reproduction (to useonly the basic Marxist categories) but as a continued income stream backing speculative capital. Thisis the primary task of austerity, the organization of a future as inherently revenue generating notthrough earning but, prior to that, as interest bearing. It screws down debt as condition for the furtherentrenchment of neo-liberalism at the moment of its deleveraging crisis.

As much as the protests against austerity condemn the finance sector for the losses it has alreadyinflicted on the populations and no less government servility to their credit-making power, they alsorefuse the further implementation of this logic and extraction of future and past earning. To sayScrew Debt whether in the form of tuition fees, increasing the retirement age, fixing housing benefitby average local rent, and to demand instead that the international finance sector takes a hit on futureearnings so as to pay back the total costs of government intervention (that anyway seeks to ensuresolvency of that sectors key institutions) and the costs of supporting the economy through theconsequent recessionary period, all of this is to reject the turn of the screw of financialization andsecuritization as a solution to the credit crisis in the guise of public austerity.

The fight against austerity is in other words a direct and for once blatant opportunity to defeat thepremise, logic and operation of neo-liberalism in its core mechanism of accumulation, and to do so asits screw looks to turn again. This is what is dangerous in the immediate struggles against HigherEducation tuition fees, the preservation of a retirement age, for free education at primary and

secondary levels, a public health service, struggles that will dominate the headlines in the comingperiod. Dangerous because the current beneficiaries of financial wealth generation, who by virtue ofsuch accumulation are necessarily the more powerful, have of course done very well from leveragingsecuritized assets and will strive through state power to not only hold on to accumulation on this basisbut also to entrench it further though austerity; to do otherwise would literally be at great cost to it.

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These struggles then constitute a politics of neoliberalism in the exact sense: the implementation or notof austerity is a matter of whether the credit crisis and consequent public debt is an opportunity forfinancialization to deepen its hold on both earnings and non-earnings, or whether it is an opportunityto defeat the extraction of past, present and future earnings from populations as interest-bearing debt.It is a matter of whether the assumptions and material-technical practices of neo-liberalism are securedand entrenched in the coming period, or whether they will be halted before they are necessitated by

government cutbacks on the material-technical-social conditions of public provision. Combatting thefurther indebting of not just labour and earnings but now also of non-labour and non-earning, ofsimply having a future at all - austerity or not - is the current politics of neo-liberalism.

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screw (down) the debt- neoliberalism and the politics of austerity

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