Debt in the Age of COVID
As the window of federal student loan forbearance comes to a close, students who have been largely unemployed for the majority of COVID-19 will be forced to start resuming their monthly student loan payments. This seems like a great opportunity to have a conversation about debt and the role it plays in our society, both culturally and economically. While the conversation we ultimately need to have revolves around debt’s effect on the entire world, I’m hoping the local nature of this topic will provide a solid starting point for some of us, who may never have given the topic of debt much thought, and might enrich a broader conversation on the nature of debt at some future date.
Let’s start by asking a few simple questions, which — by the nature of people’s fanatical ideological and political positions on debt — one would assume we all already know the answers to.
First, does the Federal Reserve need to consume the liquidity in your bank account in order to keep lending money?
Is it logical to state that, rather than having money in your bank account for an emergency trip to a hospital, or as capital to invest into something with real equity — like your own business, or a house — it is more beneficial for you to fork over that liquidity to the Federal Reserve?
Do your politics entail some belief that the government should make capital available to members of the working class who have viable business proposals?
Is the idea of charging a student almost two times what they borrowed to go to school morally problematic in any way?
Is the structural rigidity and ubiquity of debt enforcement having any crippling effect on our lives, our economy, or the project of building a society based around our own well-being?
I’m going to go out on a limb and start this piece by saying: the ideological position that it is a good idea to transfer the liquidity from our bank accounts to the Fed while a pandemic ensues is bat-shit insane, and utterly incomprehensible.
Now, I prefaced this piece by saying the larger conversation we need to have revolves around the concept of debt itself. The structural architecture of debt, our cultural misapprehensions around debt, its effect on people in countries you will never see, and its generational consequences could not be more important. I cannot emphasize enough that, while I’m writing from the perspective of someone living with student loan debt in the US, I’m not writing this piece simply to validate my personal experience, and those determined to read this in that light will undoubtedly miss the entire point of this essay. If that’s you, well — I wish you a nice, long life in the dystopian COVID hellscape we now enjoy; kindly place your ideology in the Darwinian funnel.
POV: I’m trying to start a small business. Almost a decade ago, when I was a struggling student at the University of Texas at Austin, I got some serious help from people like Will Kurzner (KVRX Studio) and Chris Nordal (Merderhaus Records) to kickstart my music career. Kurzner was one of KVRX’s chief audio engineers at the time, and had offered to produce my then band’s first full length album for free (we ended up donating a decent amount of money to him for his time, but still). Flash forward to today, where I’m trying to start a nonprofit record label to do the same thing that KVRX does for local bands in Austin, but for local artists in the East Bay, where I now reside.
Unfortunately, people like me are faced with a difficult decision right now: invest in ourselves, and end up losing tens of thousands of dollars in the form of interest on student loans, or relinquish our hard-earned nest eggs back to the Fed, and live debt-free… with no money.
One of the most ironic things about this situation is the historical and political context in which it’s situated. In the United States, we live under an ostensibly liberal president, who has been under pressure from just about every constituent he has to institute some kinds of federal relief during the COVID pandemic as a means of stimulating the domestic and global economy, which depends largely upon American purchasing power. The glaringly obvious question here is, why go through the trouble of artificially boosting American purchasing power via direct federal stimulus, simply to turn around and ask those same people to start paying back their federal loans? Would it not save a step to simply subsidize their federal debt?
Before our brilliant leaders in congress consult people like Jerome Powell or Ben Bernanke and design another convoluted, means-tested solution for stimulating American purchasing power, why don’t we do them a favor and propose some common sense solutions to the current financial crisis. For starters, since most people take on tens of thousands in debt simply to get a bachelor’s degree, why not give our economy an enormous boost by relieving debt-addled generations of the fiscal burdens of their educations, so that they can invest that money into something with equity, like a house, a business, or even the stock market?
There is a fairly plain answer to this question.
It was more of a stipulation before events like the financial collapse of 2008, or the infamous, extremely recent example of the Gamestop stock fiasco. Luckily, the contempt for normal people that our financial and political bodies have is so transparent, it makes the truth rather difficult to obfuscate. Simply put, working class people are not meant to participate in the American economic system as entrepreneurs, or shareholders. The economy is designed with one role in mind for them: indebted wage laborers. This allows the fed to rake in a nice, steady income of interest as working class people — who depend on automobiles they lack the cash for to get to their minimum wage jobs, who struggle to afford healthcare, who will go bankrupt if they spend a single night in the emergency room — live their entire lives struggling to pay off the principal.
There are many, many things people don’t understand about debt — its function, even the meaning of the word itself, which has become culturally imbued with a kind of metaphysical moral quality in common parlance. Whether you’re a die-hard Keynesian, a finance-bro with a Milton Friedman badge next to your reddit handle, an economist for The Atlantic, or just an ordinary citizen who has given no thought to their debts (other than the self-evident fact that they must be repaid, and that it is seemingly impossible to live without incurring them), the chief principle of debt manages to completely elude us.
As David Graeber lays out in the early chapters of his brilliant book, “Debt: The First 5,000 Years,” there is a fascinatingly powerful weight to the idea of “debt” in American society. The reason we all argue about it — elitist liberals against elitist conservatives, both liberals and conservatives against the working class, and the working class amongst each other — is because the idea of “paying our debts” has been conflated as an economic truism instead of what it actually is, a moral ideal. If you think that debts self-evidently must be repaid, from a pure and simple economic perspective, well, I’m happy to tell you that you don’t understand finance as well as you think.
Not only is it historically inaccurate, but even according to standard modern economic theory, the simple truism that debts must be repaid isn’t true, because money lenders always take on risk when making a loan. It’s a fundamental aspect of the entire debt agreement. Graeber makes some rather amusing remarks of what our world would look like, should all loans have to be repaid no matter what, and I encourage you to read them in his book. (If you can’t afford the book, or don’t have the time/inclination to read it, there is a very well-narrated, free audiobook of it on Youtube.) And here, I can’t help but wonder what the lowest common denominator “boot-strapping” ideologues think should have been done to the CEOs of Bank of America, Lehman Brothers, Morgan Stanley, S&P, JP Morgan, etc, when their debts were called in, and US taxpayers were handed the bill.
The answer to why pundits and partisans like Biden are constantly reluctant to do the obvious reveals what the r/WallStreetBets crowd discovered for themselves last year: regular, indebted people are not supposed to compete in the “free market,” certainly not on the same footing as the ultra-wealthy hedge fund managers. It’s antithetical to the entire US operation of subsidizing the power of our aristocracy, and their ability to monopolize property ownership, the shipping industry, the agricultural industry, the entertainment and media industry, the water you drink, the air you breath, etc, ad infinitum. It’s why the entire Democratic party had to consolidate their political power in the 2020 primaries to stop a growing wave of populist debt resentment.
The historical arc of debt — labor, war, bullion, credit, liquidity — is complicated, and there is so, so much more to get into here, but the last thing I want to do is lose you to some long and endlessly tedious piece about the most boring topic on earth, global finance. But I hope this was a useful catalyst for some, and I strongly encourage anyone intrigued by this topic to check out the late David Graeber, who is a much more articulate and charming writer than I, and his indispensable work, “Debt: The First 5,000 Years.” We are in a unique position currently, as debtors and lenders, as keepers to one another, and we would all do well to contemplate what might portend for us should we continue down a bleak and quixotic path of debt enforcement, devoid of any analysis of the potential repercussions on the the biggest stakeholders in our economy: ourselves.
