Capitalism Traps the Working Class With Debt

 

The debt trap has to some extent always been a feature of class society. After the bourgeoisie gained control over the state in its period of ascendancy, it tended to enact laws that mitigated the most devastating consequences of debt. Along with the abolition of slavery, debt peonage was gradually done away with, debtor's prisons were closed and in some countries new laws were enacted that gave businesses and individuals the right to erase their debts and gain a fresh start through bankruptcy proceedings. While most of these laws were enacted to benefit the bourgeoisie by eliminating the risk of imprisonment should one's business fail and the proprietor was unable to pay its debts, these reforms also helped to develop the working class and increase its standard of living by eliminating competition from other forms of bonded labor.

For most of its history, the working class was largely unable to access consumer credit in order to increase its consumption level. Workers' main source of credit was at the local level, through workers' cooperatives or the unions, but strict rules tended to prevent workers from borrowing more than they could reasonably afford to pay back. More frequently, bosses made use of credit through the company store to tie more vulnerable workers to the company and gain a powerful weapon with which to threaten their well being in times of class struggle. If workers threatened to organize, the company could threaten to "call in" their debts at the company store.

Faced with an open crisis of overproduction, as the World War II postwar period of reconstruction drew to a close, the bourgeoisie-with the full cooperation of its state apparatus-had to find a way to break the bottleneck and get society consuming goods and services once again. One way in which it attempted this was to extend consumer credit to the working class. By increasing home ownership by making mortgages available more easily, developing a federal student loan program to "make college affordable to all who want to go," and making it easier to qualify for credit cards and other forms of consumer credit, the bourgeoisie sought to accomplish two key goals at the same time: addressing the economic crisis by increasing consumption, while simultaneously depressing the militancy of the working class by burdening it with debt and tying it to the state.

Today, this process has reached absurd proportions, particularly-although not exclusively, in the United States. Faced with declining incomes, working class families have had to resort to debt in order to maintain a so-called "middle class lifestyle." According to the Federal Reserve Board the average credit card debt for a family in the United States now stands at $8,000-an increase of 22 percent since 2000. What's more, much of this credit card debt carries interest rates greater than 20 percent and in some cases more than 30 percent, making the usury rates of previous times appear mild. In addition, these cards usually come with a minefield of legal loopholes that allow the banks to tack on various fees and charges any time a payment is missed or a credit limit is exceeded

However, as the sub-prime mortgage crisis that is now ravaging global financial markets shows, credit cards alone have not been enough for the American working class to sustain the consumption levels that the bourgeoisie and its media mouthpieces repeatedly tell it are necessary for the health of the nation's economy. With cheap and easy mortgage credit driving up property values during the first half of this decade and an army of parasitic loan sharks pushing a multitude of risky mortgage products, American workers were encouraged-with the full consent of the government-to treat their houses like an ATM and use the equity in their homes to maintain their levels of personal consumption. In fact, much of the so-called economic recovery following the events of 9/11 was fueled by the massive tapping of home equity to support consumption.  The inevitable collapse of the housing bubble in 2006 has now left large numbers of working families with mortgages greater than the value of their homes and monthly payments that skyrocket once the initial teaser interest rates reset, forcing growing numbers of families to decide that it is in their best interests to walk away from their homes and many others subject to legal foreclosure proceedings.

As a result of this skyrocketing personal debt, in the context of the worst recession the US economy has seen in 70 years, personal bankruptcy filings have soared in the United States. According to the American Bankruptcy Institute, bankruptcy filings jumped 33 percent in 2008 over the prior year and a whopping 255 percent over 2006. While American workers still have the legal option of filing bankruptcy to erase most of their debt, this is not as simple a process as it is often portrayed in the bourgeois media. In bankruptcy, workers must give up all their assets (if they have any) to their creditors  except for a small amount that is exempted. Moreover, recent changes in the bankruptcy law made at the bequest of the credit card companies now force many people who file into a period of trusteeship for 3 to 5 years, where they have to surrender any "surplus income" to the court.

Perhaps the most disturbing aspect of the explosion in personal debt has been its devastating impact on the younger generations of the working class. This has been accomplished primarily in two ways: 1) giving young people access to credit cards much earlier in life than ever before and encouraging them to use them, and 2) through the massive explosion in student loan debt necessary to obtain a college or graduate degree. Everyone who has been to university in the last ten years, or knows someone who has, is familiar with the extent to which college campuses have become a chief marketing target for credit card companies, anxious to sign students up for debt-many of whom don't even have a real income. According to Nellie Mae-a non-profit student loan provider-the average credit card debt of American undergraduate college students currently stands at $2,200, while graduate students owe on average $5,800, figures that once again almost certainly underestimate the extent of this debt for students from working class families. Moreover, since young people generally do not have an established credit history, much of this debt is accrued on cards with higher than average interest rates.

Even more pernicious than student credit card debt is the explosion in student loan debt over the past decade and half. With their families' incomes falling, their savings depleted and access to home equity funds increasingly denied, but with the cost of college tuition and living expenses rising faster than the rate of inflation, more and more students are resorting to taking out tens, or even hundreds of thousands of dollars in student loans to finance an education that is literally required in order to even have a chance at viability in the labor market. According to the Federal Reserve Board-the average college graduate currently has $21,000 in student loan debt; the figure can approach five or six times that amount for those who pursue a post-graduate degree.

Ironically, as a college education has become more and more essential to finding a job, the value of that education on the job market has decreased, such that a college degree no longer even guarantees a job at all, never mind one that pays more than just enough to meet one's basic expenses, not factoring in student debt. The insanity of this explosion in student debt is compounded by the fact that student loans are treated much differently in American bankruptcy law than almost all other types of debt. In 1998, Congress passed legislation that rendered student loans made through federal and state government programs permanently non-dischargeable in bankruptcy. In 2005, Congress expanded this to make all student loans exempt from bankruptcy discharge, except under the most extreme of circumstances. Under these laws, students can still file bankruptcy to address their credit card debt and forfeit their non-exempt assets, but they will be forced to pay their student loans after the conclusion of the case and can still be subject to lawsuits, wage garnishments and even seizure of social security payments, effectively creating a situation of debtor's prison for many young workers.[1]

The younger generation of the working class in the United States is now faced with a situation where significant numbers of their fellow workers will begin their working lives in a situation that might be considered a form of modern debt peonage, in which a large portion of their income is confiscated to service a debt from which many will never escape. 

While it is possible that more farsighted elements in the American bourgeoisie will recognize that the emerging generation's consumption power will be severely hampered by all this non-dischargeable debt and change the bankruptcy law to make student loans dischargeable in order to attempt to stimulate more consumption, it is just as likely that the American state will be unable to find the political consensus to address this contradiction in the period ahead.[2] Caught between the declining consumption of young workers and the need to address the national deficit, which threatens its global imperialist position, the American state could just as easily decide to step-up collections and impose even more draconian measures on those in default on their student debt.

Young workers will need to transcend any illusions that they can depend on the benevolence of politicians to address their modern debt bondage and look instead to the older generations of their class and learn from their experiences on the tough road of the class struggle to destroy the capitalist system which daily demonstrates its historic incapacity to provide any reasonable future for society.

Henk 03/03/09

---

[1].-The situation has become so dire for many students that Studentloanjustice.org, an organization with the stated aim of pressuring Congress to restore "standard consumer protections" to student loans, in an interview in late February on the National Public Radio (NPR) Program "On Point," claims to have documented at least 3 cases of suicides caused predominantly by student loan issues, as well as many more cases of student debtors fleeing the country.

 

[2].- In late February of this year, Obama announced a plan to basically nationalize the student loan industry. While touted by many leftists as a "reform" in that it would largely eliminate private companies from the student loan business, this plan does nothing to alleviate the debt burden on young students and does not address the treatment of student loans in bankruptcy. In fact, it appears the motivation for this plan is to "rationalize" the industry from the point of view of state capitalism, by eliminating the state subsidies paid out to private lenders and centralizing administration and collections under the Department of Education. If the plan goes through as proposed, countless working class youth would face the prospect of basically becoming debt peons of the state, a situation more reminiscent of the societies Marx described as conforming to the "Asiatic Mode of Production" than modern capitalism.