Mountains of debt – student debt, medical debt, rent and mortgage debt, foreign debt – are a burden on working people around the world and a drag on the economy. Extracting debt payments in the financial economy instead of producing goods and services in the real economy is how capitalists are making a large portion of their profits these days.
From Industrial to Rentier Capitalism
Capitalism has suffered from a structurally intrinsic crisis of overproduction since the end of the post-war economic boom in the 1970s. Part of what happened is that rebuilding the industrial and urban infrastructure of the Global North that was destroyed in the war was largely completed over the first couple of decades after World War II. The other part is that profit rates tend to decline for reasons internal to capitalism. Capitalists compete by lowering labor costs, especially by investing in more productive technology. Less labor is needed to produce more wealth. But exploiting labor—paying labor less than the value it produces—is the source of profits. Thus over time profit rates decline and labor has less money with which to buy what is produced. Between completing the post-war build out and falling profit rates, capitalists faced fewer profitable opportunities to invest in the real economy of production.
Capitalists have turned from industrial capitalism to rentier capitalism as a major source of profits. They turned to making money from concentrated ownership of assets and the income streams produced by these assets in the real economy. These income streams take the form of economic rents, which are unearned income over and above the real costs of production. Among the assets where concentrated ownership enables the extraction of economic rents are land, natural resources, intellectual property, digital platforms, privatized public infrastructure and service contracts, and the financial assets that securitize loans and the income streams from concentrated ownership of these other assets. Financial capitalists make their money so much not from exploiting labor in production as by siphoning off as much money as they can from the real economy of production in the form of economic rents. A substantial portion of economic rents take the form of debt payments. Debt is imposed by private monopolistic control of what should be public assets, goods, and services like land, natural resources, health care, housing, education, electric power, broadband, and transportation.
Debt and Growing Income Inequality
The capitalist class has tightened its grip on the working and middle classes through debt over the last 40 years. In 1978, the Supreme Court opened the door to usurious interest rates in Marquette National Bank of Minneapolis v. First of Omaha Service Corp., which ruled that state anti-usury laws regulating interest rates cannot be enforced against nationally chartered banks based in other states. National banks then set up predatory lending operations by locating in states such as South Dakota and Delaware with little regulation and began marketing high-interest credit and loans to vulnerable communities across the United States.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which unsurprisingly had strong support from the then Senator from Delaware, Joe Biden, left more and more struggling people unable to discharge debt through bankruptcy by creating the unnecessary and humiliating step of mandatory credit counseling before being allowed to file.
Financial capitalists in the U.S. are the top 1% in particular – and to a lesser extent the top 10% who own over 88% of all stocks – who profit from holding the rest of the economy in debt. Since 1975, the working class and middle class bottom 90% have seen their share of income decline, while the share going to the top 5% has doubled. By 2020, the top 1% had taken $50 trillion from the bottom 90% compared to if income distribution had remained the same since 1975.
These economic rents are not a necessary cost of production. They raise the cost of production and are a drag on the real economy of production. The more socialized an economy is, the lower the production cost structure is going to be. The role of the government in a socialist economy is to provide basic needs like healthcare, housing, education, transportation, electric power, and other basic services at cost instead of cost plus profit in order to lower the costs of doing business and maintaining a household in the real economy of production.
A Socialist Approach to Debt Relief
The basic approach of debt relief has to be to suspend and write down the debts owed to the 1% and to socialize the production of goods and services that meet basic needs. If the banks go under because of this debt write down, we should take them over as public utilities that can finance real production instead of financial schemes to extract economic rents. Writing down debt also means writing down the financial assets of the rentier capitalists. It will create a much more equal distribution of income and wealth by having the rich bear the costs of economic recovery out of the pandemic contraction and into the new green economy of clean energy, zero waste, and meeting the basic needs of all.
Under an Ecosocialist Green New Deal, medical, student, and utility debt would eventually be fully eliminated through enacting improved Medicare For All, free public higher education, and the socialization of public utilities. Public housing would be scaled up to meet the need and ensure all people have access to quality affordable housing. The U.S. would lead the way in providing debt relief to poor countries and paying the ecological and climate debt to the Global South in order to finance a global transition to a 100% clean energy and the restoration of forests, agricultural soils, wetlands, and other carbon-storing habitats.
While fighting for this future, we must demand immediate reforms to relieve the burden of debt on poor, working class, minority, and other economically struggling people.
To this end, The Green Socialist Organizing Project supports the following demands:
— Forgive 100% of current student debt. The federal government should forgive current student debt, 92% of which is owed to the federal government, and establish an interest-free student loan program going forward to cover private school tuition and non-tuition education and living costs.
— Forgive 100% of current medical debt. The federal government should negotiate and pay off all past-due medical bills. For example, see Sen. Bernie Sanders proposal: https://berniesanders.com/issues/eliminating-medical-debt/
— Cap credit card interest rates at 15%. See the proposed Loan Shark Prevention Act (H.R. 2930), https://www.congress.gov/bill/116th-congress/house-bill/2930.
— Suspend rent and mortgage payments for primary residences with the federal government reimbursing lessors and lenders for payments suspended for the duration of the Covid emergency. See the proposed Rent and Mortgage Cancellation Act (H.R.6515), https://www.congress.gov/bill/116th-congress/house-bill/6515.
— Reform consumer bankruptcy law to eliminate barriers to consumers declaring bankruptcy, including for student debt. See the proposed Consumer Bankruptcy Reform Act (S. 4991), https://www.congress.gov/bill/116th-congress/senate-bill/4991.
— Reform credit reporting industry, including a ban on credit checks from employment applications. See the Comprehensive Credit Reporting Enhancement, Disclosure, Innovation, and Transparency (CREDIT) Act, https://www.congress.gov/bill/116th-congress/house-bill/3621.
— Establish a public credit registry to replace the privately-run three credit bureau system. See the proposed National Credit Reporting Agency Act, https://financialservices.house.gov/uploadedfiles/bills-117pih-nationalcreditreportingagen-u1.pdf.
— Ban the “pay to vote” laws in 30 states that deny the right to vote to ex-offenders due to debt owed to courts and/or prisons.
— Institute a Global Green New Deal for economic justice and ecological sustainability that includes the cancellation of financial debts owed by poor countries to their creditors in the rich countries and the payment of the climate debt owed by the U.S. to the Global South for carbon emissions and biodiversity destruction. See the proposals of the Committee for the Abolition of Illegitimate Debt and the Fair Shares proposal on climate debt proposed by U.S. based environmental justice groups.