Quick thoughts on public debt
Source Julio Huato
Date 10/05/07/23:42

MEDIA PUNDITS, economists, and politicians claim that the current
level of public indebtedness in the U.S. and its further expansion are

Seemingly, "our" profligacy is catching up with us. The day of
reckoning approaches. We should either prepare for a drastic decline
in social welfare tomorrow or accept a worsening of the economic
situation today -- e.g. the government should limit its meager
"stimulus" spending and allow the economy to slip into greater
joblessness to prevent the looming catastrophe. The crisis in Greece,
that many commentators attribute to a borrowing binge by the Greek
government, is now being alluded as exhibit 1. (Let alone the fact
that the sudden increase in Greek public debt may have resulted from
the financial crisis and the attempt of the Greek government to
salvage banks that are now downgrading its debt, as Costas Lapavitsas
claims here: One of the latest additions to
this parade of nonsense is Arianna Huffington's "Life in the Age of
"Much Worse Than We Thought It Would Be"" (

Economists, of course, will pretend that fundamental scarcity -- i.e.
the fact that society's total labor time and its productive force are
never infinite -- is at the root of the dilemma. Society's cake is
finite, and one cannot eat it and have it at once. Except that this
is a false premise. The public debt (or the private debt, for that
matter) has absolutely nothing to do with the finiteness of society's
resources and productive possibilities. It's not nature but social
convention or, more precisely put, social structure.

Public debt is not about the limited production possibilities of our
society. Public debt is about how the wealth that exists (or will be
produced) is (or will be) held -- by whom and at whose exclusion. In
other words, it is about how the ownership over existing wealth is
distributed. It's about who owns today's wealth and, hence, holds the
enforceable claims over future production flows. It is not about how
large these flows can be with existing resources and productivity.
Wealth distribution is a social condition, not a fact of nature. It
is entirely within the reach of human capabilities to alter the form
in which wealth ownership is distributed.

Of course, the smuggled pretension here is that the only conceivable
or legitimate way in which wealth ownership can be reshuffled in our
society is via the market mechanism: that private ownership is sacred.
But, any thought about it shows that the pretension is exactly
contrary to the very (contradictory) institutional framework and modus
operandi of modern capitalist societies. No modern capitalist society
would last long without a massive state -- tasked with enforcing and
protecting ownership rights, disciplining labor, undertaking social
programs to preempt unrest, waging wars, regulating commerce, and
plain taking from the poor (and the out-of-favor rich) to give to the
rich (and better connected). A massive state requires taxation and
the allocation of expenditures outside of the market mechanism.

Furthermore, historically, under capitalism, high levels of public (or
private) indebtedness have always been resolved, partially or
entirely, through politically-sanctioned or politically-induced
processes of wealth redistribution -- from land reforms and outright
expropriation to price management to relatively benign inflationary

The McKinsey Global Institute ( estimates that
adjusting the imbalances that led to the ongoing crisis will require a
(on average) 6-7 year long process of "deleveraging," which should
wind up reducing the ratio of debt to GDP by 25%! How can such a
massive transfer of wealth ownership ever happen anywhere without a
politically sanctioned process or carnage? Can any society today
accomplish this feat by heeding Andrew Mellon's dictum alone --
liquidate, liquidate, liquidate? At what human cost. (Isn't the
point of an economy supposed to be "human welfare"?)

Again, unless they are willing to see themselves reduced to chop
liver, working people are going to have to take matters on their own
hand. The Greek people are showing the way. And this is not an
endorsement of the methods of small groups of anarchists or
professional provocateurs. It's simply the notion that working people
will need to take action, rather than wait for the powers to decide
how to allocate the cost of the "adjustment."

Just like the spike in public indebtedness in Greece followed the
financial panic and the government's effort to prop up its banks,
public indebtedness in the U.S. has next-to-zero to do with welfare
queens on Cadillacs or poor people getting over their heads with
subprime mortgage borrowing. It has mostly to do with war making, tax
cuts for the rich, the secular decline in the real income and economic
security of working people since the 1970s, the financial blowout, all
rooted in traits inherent to capitalism.

There's nothing inevitable here, but the struggle. It is a class struggle.

[Note to economic theorists: I am not claiming that distribution and
efficiency are independent variables under an abstract, pure, and
functional capitalist economy. Those theoretical constructs assume
that capitalism functions smoothly. In other words, they assume that
working people are reduced to perpetual political submission. I'm
referring to the fact that things do not have to be that way.]

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