Pay It Forward

Last time it was Fred Pohl and Cyril Kornbluth, this time it was Wendell Berry. From 1952, The Space Merchants was satirizing indebtedness in the industrial sector, imagining a system of corporate indentureship where wages, by design, could only contribute to paying debt, which of course accrued faster than the pay could cancel it in the company town. It must have been funnier in foresight. In Berry's novel, Jayber Crow (review pending), it's a look back on the 1950s, when mechanized farming really started taking off, and we're given object lesson in debt and sustainability, where the borrowing against the yield for consolidation and growth broke the land use cycle and stabbed the community in the heart. (If I find a handy pull-quote or two, I'll add them later.) It's an interesting piece of historicity: Jayber's reminiscences take place a good century after America's Populist movement. Agriculture was already getting infected with finance in the eighteen-fifties, with fungible grain and futures trading already starting to deliver their mixed blessings. I'm not 100% sure where I stand with respect to agrarian Populism. I'm certainly sympathetic, and I think centralized industrial agriculture has been civilization-scale fuckup, but I also think shrinking the world with technology and transportation has largely been a good thing. Or could've been at least.

And of course (like the Populists), my interest is self-centered and my worldview is heavily projected. I'm more familiar with the debt traps of the modern knowledge-work economy where we aren't actually making anything, and they're alarming in their own way. Wage growth has been poor over the last thirty years, and has been nonexistent for the past ten. Meanwhile, household debt has skyrocketed (and recently declined a little with house prices, but remains enormous; I'll add some charts later if I can find any that summarize it neatly), and loan-based assets (like your house, your car, and your education) are more essential for existence within the model and have likewise puffed up with dubious prices, and escape-free legal clauses. With new legislation designed to prevent it, we can look forward to more creative gouging from our credit card masters (I need to ask what the "minimum interest charge" was all about). Instead of exchanging our labor for income, we're exchanging it for debt. (Poetically just, maybe, considering what our labor produces, but it's no way to live.) Individually, we may or may not be doing okay, but collectively, we're getting screwed.

Like most technologies, the indecency of debt depends a lot on how it's used. Anyone who's made an online purchase can appreciate how great is that liquidity that easy debt (or really, the easy transfer of funds). It is not difficult to justify borrowing when it's temporary, borrowing a little when times are tough, or for the sake of convenience, provided you can expect to repay in the normal course of things. I want to complain about what I guess is called structural debt, the kind that most of us plebes are stuck with, whether it's the mortgage, student loans, or all those pizzas we ate in college. It's those debts that are caught up inexorably with our working lives that really control us.

From a personal vantage, these running obligations are basically liveable, even though they tend to stay you in your course. We're still doing the same things, approximately: working and getting paid, and, unless we're producing our own essentials, paying for approximately the same things. That big tab sure as shit removes freedom though. Try being without a paid job, downgrading your existence to raise a family, or raise food, or even to actually observe life for a moment as it passes you by. It's like forward differencing, you get the same area under the curve, but instead of working with existing data, each time step is one out into the unknown and poorly modeled future. (Or maybe I'm wanting model-predictive control as my analogy. Do they make economists take control theory? They probably should. Understanding dynamic systems is helpful. e.g.)

Even temporary debt presumes your income will grow or at least remain predictable. Taking on a deficit restricts your future. Debt is the engine that drives the treadmill of the rat race.

People who are not you are have gotten rich off of your debt, of course, and they've fought getting poor when you couldn't pay it. It's diffuse, and there's a great deal of overlap because debt issuers are also employees and consumers and there are a million modes of lending, and a lot of small investors, but if we're looking at the extremes, it's the issuers that generally have the upper hand in society. You can argue that there's mutual benefit when it comes to lending, and I think that's probably true. Lending can enrich the borrower too, enabling him to do things that can produce growth (although even when it ends up win-win, the lender and the debtor are not advantaged to change roles), but I don't believe that this is the equilibrium that naturally emerges when the debt-holders are left out of the rule-making loop, and when the debt-originators become few in number. As human history generally exhibits.

It's appropriate to contrast government debt with private debt. Government borrowing also performs the task of supplying liquidity for social programs, but in addition, it offers the service of a stable investment for excess capital. (It's one of those things that works out in an argument of scale, like insurance pools, conservation, or colonialism, when they fall to the state, or to an agency with similar scope.) In that case, the debt-holders are more diffuse than, say, mortgage lenders, but you can worry about the concentration or composition of power there too if you want to, and a different set of worriers pops up quadrennially in this country. The government (or at least its quasi-subsidiary banks) also has additional powers over its debt, controlling things like money supply, exchange rates, and the overall amount of securities it chooses to issue. I'm not excited about the concentration of those powers either, but in bonds, there's a point to their stability, and the monetary entities are at least countered by the fairly democratic population of bondholders, who'd all be pissed if things changed obviously and quickly.

No one likes a welcher, but weaseling people into debt has got to be the bigger evil. The government also makes laws that govern all of these loan contracts, and can you tell me that, say, fractional reserve lending isn't letting independent banks that hold people's debt fuck with the money supply to their favor? Nominally, the U.S. government represents us marks as well as the sharks, but the large banks have little such interest. Legal conditions that enabled easy and high-level private financing have correlated to tuition and real estate bubbles--is there causation at play there too? Someone is making money off those deals.

The basic idea of the liquidity model that works for my home finances seems to make sense for the government, however. My economic expertise is obviously shaky, but there are some differences there too: the bureaucracy doesn't have to eat, but I suppose it can identify baselines for its services or for its existence. Deficit spending to spur economic growth isn't quite the same mechanism as our household plans, but it's still demanding that the future get bigger. I've worried about this a lot. Given limited resources, that can't really be a good thing.

On the other hand, we can take government spending from a money-is-not-real perspective, and keep in mind that money describes the economy, and not vice versa. Sure, the central deal with capitalism is that money is a good representation of our economic activity, and that under rules of its exchange, we can optimize producing or doing some things. (Just like you can take silly unintuitive thermodynamic variables like "fugacity" or do a coordinate transformation to more easily describe or design certain systems, with the caveat that in physics and engineering, those math tricks still describe real things.) The Populist farmer/economists are interesting in that their understanding of the fundamental relations of money to labor and commodities was a lot keener than most people's. Money is a contract, ultimately a matter of mutual agreement or of law. The dynamics of that can drive human behavior, but to a large degree it's as reflective of our human organization as the law is. People making, doing, or exchanging stuff is what the economy is, and we can spur that in various ways and then define the accounting around it. Arguably, that's the way we always have done it when someone has had greater access to Da Rules. The wealth distribution, even where it goes negative, describes power concentrating or decentralzing as much as it is a mechanism of those processes. By that measure, this place isn't particularly progressive or democratic.

Now if you'll excuse me, I've got to get to work here.