The following is a transcript of Dr. Johnna Montgomerie’s speech at the launch of the Progressive Economy Forum, in which she discusses the intimate link between ‘public’ and ‘private’ debt and its implications for the debate around austerity.
Ten years on from the Global Financial Crisis we are still in the grips of the Debt Economy. To put it simply there is a mutual dependence on debt: on the one hand, by government to drive flagging growth; on the other hand, by households to maintain their standard of living. This debt-dependence is a strategic silence. Everyone knows it is the root of entrenched economic malaise but no one in a position of power is willing to do anything about it. The economic governance of debt is on auto-pilot. The only real discussion is whether interest rates will nudge up by a fraction of a percent, or remain at historic lows of half a percent, for yet another four months. While politicians will occasionally rail against the perils of ‘public debt’, there is never a discussion of ‘private debt’, or the growing indebtedness of households.
My provocation to break the strategic silence on debt is that – all debt is both public and private at the same time. In the era of unconventional monetary policy, the boundaries between public and private debt are porous. What began in 2008 as bailouts became unquantified risk guarantees, asset buy-backs and long-term refinancing packaged together as Quantitative Easing, which after successive rounds has turned credit into a publicly subsidised commodity that only a handful of actors get access to. For example, a bank can borrow from the Bank of England at nearly zero percent interest – negative real rates when inflation is factored in. A large corporate borrower would get very close to 1%, again negative when inflation is factored in. Small businesses, if they can access credit at all (which is a big ‘IF’) could get between 2-6%. A homeowner, depending on how much equity in the home can borrow at 2-5%. Lines of credit, from 3-6.5%. A student loan, 6-8%, a credit card 18%, overdraft 35%, a pay day loan 350%.
To put it another way: if you need a £50 million loan you get negative rates, if you need £15,000 to get a University Degree you pay 6% and if you need £50 to make it to the end of the month it is hundreds of percent. At a time when government debt is the collateral for the entire financial system, the terms of credit show clearly how who the winners and losers of unconventional monetary policy are.
Furthermore, debt intervenes into the intimacies of everyday life; the young need a lot of debt to get an education (to hopefully get a job), a prospective homeowner needs ever more debt to access residential property. Debt is also a safety net. When someone in the household is made redundant, get a loan. When an elderly parent needs care, borrow. When a baby is born, run the credit card. The only thing worse than drowning in debt is having no access to credit at all – then all paths to education, housing and personal security are off limits.
It’s not just about monetary policy, but also the complete lack of effective (or meaningful) fiscal policy that enables the debt economy to flourish. It is bailouts and subsidies for some, and austerity for the rest.
As successive rounds of QE pumped more and more government debt into financial markets, the British public were told ‘we need to cut back on spending to reduce government debt’ and that ‘there is no magic money tree’. Over the past decade the Bank of England’s balance sheet has grown to a size never known in history to feed the financial sector. During this same period child poverty has risen by a million because there is no money to feed hungry children. As Mervyn King stated in 2011: “It is those people that absolutely did not cause the financial crisis, who now must pay for it”.
The standard critique of austerity focuses on the misuse of the ‘household’ metaphor to justify why the Treasury must curtail spending to pay down the national debt. Here, the boundary between the public debt and private debt is enforced because of the different terms under which governments and households access debt. The government can ‘monetise debt’ by creating its own national currency (money) by issuing sovereign bonds to pay for existing debt stock. By contrast, households borrow from banks at market interest rates, and these debts are paid for with waged income. This qualitative difference between public and private debt is accurate, but creates a misdirection. Making the distinction between public and private debt is done to advance another argument altogether: government spending needs to be used for investment and to stimulate growth, rather than more austerity.
The problem of this anti-austerity argument is its focus on the numerical representations of debt as a stock of outstanding claims. It overlooks how debt is managed through emotional labour of people to care for, take responsibility for, and honour the obligations debt imposes. Thinking in these terms makes the emotive power of the austerity argument more obvious. The argument in favour of retrenchment, or cutting back to tackle the national debt, is merely re-articulating the everyday reality that a growing number of people face. They are dealing with a personal financial crisis, their income is not enough, their debts are too big to manage, and they must cut expenditures to pay down their debt in the hope that one day (many years from now) they will be prosperous again.
Austerity makes sense at the scale of the household, using the logic of everyday life. So much so that sound economic reasoning about the different institutional configuration of gilt-funded fiscal policy (and its role as guarantor of the global financial markets) does not resonate with people on an everyday level or in a way that can foster resistance to austerity.
The Progressive Economy Forum is a place where the everyday reality of people will be the starting point for the end of austerity. We need greater pluralism in economic thinking and an effervescent progressive debate about the economy. Entrenched economic malaise is fostering ever-greater forms of political and social instability, so much so that people are prepared to believe it when a strong man tells them it is as easy as ‘taking back control’ or being ‘great again’. Progressives must forge new economic discoveries that lead us out of crisis and into renewal. Our future depends on it.
