The Parkland Institute

Op-eds | September 01, 2011

The debt crisis: A case of false memory syndrome

by Trevor Harrison

The acclaimed author, Milan Kundera, has written that, “The struggle of man against power is the struggle of memory against forgetting.” But the ongoing world financial crisis shows how false memories can fool us and make us unable to confront corporate power.

For over a year, we have been bombarded with stories of the threat of “sovereign defaults.” The PIGS – one can imagine political conservatives salivating as they arrived at that acronym – Portugal, Italy, Greece, and Spain (to which add another “I” if one includes Ireland) have been roundly denounced for the size of their public debt to GDP (83 percent in Portugal, 94 percent in Ireland, 118 percent in Italy, 144 percent in Greece, and 63 percent in Spain). Then, to these countries as the year progressed was added the United States at 60 percent to GDP.

In terms of the latter, US debt is substantially lower than it was at end of the Second World War. Government spending helped win the war (in conjunction with the other Allied countries), while also pulling the country out of the Great Depression and, through the programs of the New Deal, set the stage for economic growth and a more egalitarian society in the decades that followed.

Ignoring these facts, the US debt ceiling crisis – not so much a crisis as an opportunity for posturing by that country’s political class – has given renewed vigor to a chorus of business economists, libertarians, and conservative talk radio pundits (are there any other kind?) eager to blame the ongoing crisis on spendthrift governments, “greedy” public sector workers, unions in general, and the alleged “lazy” poor. The gist of these arguments, as always, is that government should continue to lower corporate tax levels, end progressive taxation as a whole, cut spending – especially in areas of public welfare – and otherwise deregulate and privatize, leaving everything to the private sector to make right.

Mmm. Just a second. Isn’t that what we’ve been doing for thirty years? The United States, for example, has by far the lowest taxes in the western industrialized world and a relatively miniscule welfare state, with a poorly functioning (private) health care system. It also has the smallest unionized work force in the western world, with many states having anti-union, right to work legislation. But its finances are in terrible shape and unemployment continues to hover around 9 percent. As Dr. Phil says, “How’s that working for you?”

But the problem is not that of the US alone. Spain has an unemployment rate of 21 percent, Greece 18 percent, the other countries similarly large. Most worrying, the unemployment rate for people under twenty-five is double this, 40 percent in Greece. Is all this the result of government spending?

Let’s take a short walk down memory lane. In the roughly thirty years since markets have been allowed to run free, a time when states have increasingly come to view their role not as protecting citizens but as handmaidens to corporate capitalism, the world has been rocked by a series of economic upheavals: recession in the early 1980s, the market crash later that decade, another recession in the early 1990s, followed by the domino-like collapse of currencies starting with the Thai baht in 1997, and finally the most recent recession (or contraction, as one prominent economist has termed it), beginning in 2007. Of course, each of these crises was punctuated with growth in corporate profits, but real economic growth was often uneven and the benefits ill distributed.

You might say this is “old history.” OK, let’s concentrate on the most recent crisis, four years and counting.

Do you remember what was happening throughout 2007 and 2008? Let me jog your memory. Bear Stearns. Lehman Brothers. Goldman Sachs and Morgan Stanley. General Motors and Chrysler.

Each of these private institutions, and many others, were in financial crisis. Many went under. Those that survived, however, benefitted from governments in the United States and elsewhere bailing them out. As political economist David McNally details in his highly readable book on these events, Global Slump, they invested $20 trillion in saving the capitalist economy from itself. In effect, governments virtually over night converted private (corporate) debt into public – i.e., “sovereign” – debt.

What has been the result? Today, these same governments – either conservative in stripe or action (i.e., the Obama administration) – are returning to the failed policies of keeping taxes low, deregulating and privatizing the state, and shrinking public services. Meanwhile, the gap between the haves and the have-nots continues to grow, as it did before – and greatly contributing to – the recent crisis.
But, the banks and other large corporate institutions were saved. Until recent weeks, markets around the world were steadily regaining what was lost after 2007. Quarterly earnings for the banks have been particularly robust, so much so that the practice of giving out bonuses has been resurrected. Happy days are here again.

Well, almost. What are private corporations doing with their increasing largess? Are they putting it back into the economy to stimulate growth and get people back to work? No. Why not? Because, it is argued, the high level of public debt has eroded business confidence.

It’s time we remembered how the debt crisis actually started.

Trevor W. Harrison is a political sociologist at the University of Lethbridge and co-director of Parkland Institute.

Links to Media:

• Lethbridge Herald, September 01, 2011

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