The Middle Class Is Now The Company Store Class
America’s Best Economist
Tells It Like It Is
The Middle Class Is Now The
Company Store Class
Michael Hudson
Students usually don’t
think of themselves as a class. They seem “pre-class,” because they have not
yet entered the labor force. They can only hope to become part of the middle
class after they graduate. And that means becoming a wage earner – what
impolitely is called the working class.
But as soon as they take
out a student debt, they become part of the economy. They are in this sense a
debtor class. But to be a debtor, one needs a means to pay – and the student’s
means to pay is out of the wages and salaries they may earn after they graduate.
And after all, the reason most students get an education is so that they can
qualify for a middle-class job.
The middle class in America
consists of the widening sector of the working class that qualifies for bank
loans – not merely usurious short-term payday loans, but a lifetime of debt. So
the middle class today is a debtor class.
Shedding crocodile tears
for the slow growth of U.S. employment in the post-2008 doldrums (the
“permanent Obama economy” in which only the banks were bailed out, not the
economy), the financial class views the role industry and the economy at large
as being to pay its employees enough so that they can take on an exponentially
rising volume of debt. Interest and fees (late fees and penalties now yield
credit card companies more than they receive in interest charges) are soaring,
leaving the economy of goods and services languishing.
Although money and banking
textbooks say that all interest (and fees) are a compensation for risk, any
banker who actually takes a risk is quickly fired. Banks don’t take risks.
That’s what the governments are for. (Socializing the risk, privatizing the
profits.) Anticipating that the U.S. economy may be unable to recover under the
weight of the junk mortgages and other bad debts that the Obama administration
left on the books in 2008, banks insisted that the government guarantee all
student debt. They also insisted that the government guarantees the financial
gold-mine buried in such indebtedness: the late fees that accumulate. So
whether students actually succeed in becoming wage-earners or not, the banks
will receive payments in today’s emerging fictitious “as if” economy. The
government will pay the banks “as if” there is actually a recovery.
And if there were to be a
recovery, then it would mean that the banks were taking a risk – a big enough
risk to justify the high interest rates charge on student loans.
This is simply a replay of
what banks have negotiated for real estate mortgage lending. Students who do
succeed in getting a job hope to start a family, or at least joining the middle
class. The most typical criterion of middle-class life in today’s world (apart
from having a college education) is to own a home. But almost nobody can buy a
home without getting a mortgage. And the price of such a mortgage is to pay up
to 43 percent of one’s income for thirty years, that is, one’s prospective
working life (in today’s as-if world that assumes full employment, not just a
gig economy).
Banks know how unlikely it
is that workers actually will be able to earn enough to carry the costs of
their education and real estate debt. The costs of housing is so high, the
price of education is so high, the amount of debt that workers must pay off the
top of every paycheck is so high that American labor is priced out of world
markets (except for military hardware sold to the Saudis and other U.S.
protectorates). So the banks insist that the government pretends that housing
as well as education loans not involve any risk for bankers.
The Federal Housing
Authority guarantees mortgages that absorb up to the afore-mentioned 43 percent
of the applicant’s income. Income is not growing these days, but job-loss is.
Formerly middle-class labor is being downsized to minimum-wage labor
(MacDonald’s and other fast foods) or “gig” labor (Uber). Here too, the fees
mount up rapidly when there are defaults – all covered by the government, as if
it is this compensates the banks for risks that the government itself bears.
From debt peons to wage
slaves
In view of the fact that a
college education is a precondition for joining the working class (except for
billionaire dropouts), the middle class is a debtor class – so deep in debt
that once they manage to get a job, they have no leeway to go on strike, much
less to protest against bad working conditions. This is what Alan Greenspan
described as the “traumatized worker effect” of debt.
Do students think about
their future in these terms? How do they think of their place in the world?
Students are the new NINJAs:
No Income, No Jobs, No Assets. But their parents have assets, and these are now
being grabbed, even from retirees. Most of all, the government has assets – the
power to tax (mainly labor these days), and something even better: the power to
simply print money (mainly Quantitative Easing to try and re-inflate housing,
stock and bond prices these days). Most students hope to become independent of
their parents. But burdened by debt and facing a tough job market, they are
left even more dependent. That’s why so many have to keep living at home.
The problem is that as they
do get a job and become independent, they remain dependent on the banks. And to
pay the banks, they must be even more abjectly dependent on their employers.
It may be enlightening to
view matters from the vantage point of bankers. After all, they have $1.3
trillion in student loan claims. In fact, despite the fact that college
tuitions are soaring throughout the United States even more than health care
(financialized health care, not socialized health care), the banks often end up
with more education expense than the colleges. That is because any interest
rate is a doubling time, and student loan rates of, say, 7 percent mean that
the interest payments double the original loan value in just 10 years. (The
Rule of 72 provides an easy way to calculate doubling times of interest-bearing
debt. Just divide 72 by the interest rate, and you get the doubling time.)
A fatal symbiosis has
emerged between banking and higher education in America. Bankers sit on the
boards of the leading universities – not simply by buying their way in as
donors, but because they finance the transformation of universities into real
estate companies. Columbia and New York University are major real estate
holders in New York City. Like the churches, they pay no property or income
tax, being considered to play a vital social role. But from the bankers’
vantage point, their role is to provide a market for debt whose magnitude now
outstrips even that of credit card debt!
Citibank in New York City
made what has been accused of being a sweetheart deal with New York University,
which steers incoming students to it to finance their studies with loans. In
today’s world a school can charge as much for an education as banks are willing
to lend students – and banks are willing to lend as much as governments will
guarantee to cover, no questions asked. So the bankers on the school boards
endorse bloated costs of education, knowing that however much more universities
make, the bankers will receive just as much in interest and penalties.
It is the same thing with
housing, of course. However much the owner of a home receives when he sells it,
the bank will make an even larger sum of money on the interest charges on the
mortgage. That is why all the growth in the U.S. economy is going to the FIRE
sector, owned mainly by the One Percent.
Under these terms, a “more
educated society” does not mean a more employable labor force. It means a less
employable society, because more and more wage and consumer income is used not
to buy goods and services, not to eat out in restaurants or buy the products of
labor, but to pay the financial sector and its allied rentier class. A more
educated society under these rules is simply a more indebted society, an economy
succumbing to debt deflation, austerity and unemployment except at minimum-wage
levels.
For half a century
Americans imagined themselves getting richer and richer by going into debt to
buy their own homes and educate their children. Their riches have turned out to
be riches for the banks, bondholders and other creditors, not for the debtors.
What used to be applauded as “the middle class” turns out to be simply an
indebted working class.
Global Research
