Is Debt the New Karma? Why America Finally Fell Apart
A second allegory of the American Way of Life is the story of Dr. Faustus, who made a pact with the devil. “A Faustian bargain,” writes the Canadian author Margaret Atwood in her book Payback, “is one in which you exchange your soul or something equally vital for a lot of glitzy but ultimately worthless short-term junk.” Your soul, in other words, is the debt that has to be paid at the end of the day.
In effect, the American Way of Life has been a Faustian bargain, and this is true both domestically and in the arena of U.S. foreign policy. Alistair Cooke, who used to host a “Letter From America” program on the BBC every week, once said that the essential idea of America was to regard as necessities those things that the rest of the world regarded as luxuries. This attitude manifests itself in the fact that although the United States comprises less than 5% of the world’s population, it consumes 25% of its energy–a situation that was condemned by only one American president, Jimmy Carter, and Americans did not take kindly to him as a result. The dark, or debt side of the notion that life is about unlimited material goods shows up in the data on bankruptcy: whereas 8,600 Americans filed for bankruptcy in 1946, more than 2 million did in 2005. Put another way, in 1946 one in 17,000 Americans declared bankruptcy; in 2005, one in 150 did. By 2006, the total public debt stood at $9 trillion, or 70% of the GDP, and personal bankruptcy filings for 2007 increased 40% over the figure for 2006. Journalist Chris Hedges reports that as of 2009, American consumers were $14 trillion in debt. As for the activity of the U.S. government in this arena, Hedges reports that the Obama administration
"has spent, lent or guaranteed $12.8 trillion in taxpayer dollars to
Wall Street and insolvent banks in a doomed effort to reinflate the
bubble economy, a tactic that at best forestalls catastrophe and will
leave us broke in a time of profound crisis. [In addition] Obama has
allocated nearly $1 trillion in defense-related spending and the
continuation of our doomed imperial projects in Iraq, where military
planners now estimate that 70,000 troops will remain for the next
15 to 20 years."
In fact, the bailout did not stay at $12.8 trillion for very long; it soon turned into $13.3 trillion, then $17.5 trillion, and, at one point, $19 trillion. Meanwhile, we are expanding the war in Afghanistan, a land that has traditionally been called “the graveyard of empires.” But “America’s most dangerous enemies,” writes Hedges, “are not Islamic radicals but those who sold us the perverted ideology of free-market capitalism and globalization. They have dynamited the foundations of our society.”
The best example of these domestic radicals is the Wall Street firm of Goldman Sachs, the world’s most powerful global bank. In a 2009 article in Rolling Stone, journalist Matt Taibbi documents how GS played a key role in the crash of 2008, and how it has been doing this repeatedly since the crash of 1929. Their formula, he says, is to position themselves in the middle of a speculative bubble and sell investments they know to be worthless. They then make huge amounts of money, and when the bubble bursts they reposition themselves to begin the process all over again, in a different sector of the economy. In the case of the housing crisis, GS created financial vehicles to package bad mortgages and sell them to insurance companies and pension funds (the failure of which wiped out the savings of millions of older citizens). This created a “mass market for toxic debt.” GS hid these in Collateralized Debt Obligations (CDO’s), which turned junk-rated mortgages into AAA-rated investments. They then got companies such as AIG to provide insurance (known as credit default swaps) for the CDO’s, by means of which they were actually betting that homeowners would default. Meanwhile, the government, which at any time is typically staffed with Goldmanites or ex-Goldmanites, was persuaded to change the rules of the banking game so that all of this, if grossly unethical, is technically legal. (Nomi Prins, a former managing director of GS, characterizes this incestuous relationship as “Government Sachs”; Taibbi notes that GS contributed nearly $1 million to the Obama election campaign.)
In the case of the subsequent bailout, says Taibbi, former GS CEO Henry Paulson (G.W. Bush’s last Treasury secretary) took trillions of dollars and funneled them into the pockets of his friends on Wall Street. So Robert Rubin (at GS for 26 years and Clinton’s former Treasury secretary) moved to Citigroup, which then got received $300 billion from Paulson; John Thain, who moved to Merrill Lynch, also got a multibillion-dollar handout; and AIG received $85 billion, which enabled it to repay the $13 billion it owed GS. “Gangster elite” is the appropriate phrase for these people, I would think, although Taibbi himself favors the phrase “vampire squid.” He points out that after playing a key role in four historical bubble catastrophes, helping $5 trillion disappear from the NASDAQ, and pawning off thousands of toxic mortgages on pensioners and American cities, GS paid a total of $14 million in taxes in 2008, an effective tax rate of 1%.
As a former GS insider, Nomi Prins makes it abundantly clear that her ex-colleagues care absolutely nothing about the country, and everything about their own private wealth and power. They believe, she writes, that their privileged position is their destiny, and regard themselves as being completely “above explaining their actions to the public or expressing anything that might look like contrition or humility.” This proved to be true in April 2010, when the Senate finally dragged some of these executives to a hearing on GS business practices. The list of accusations was quite extensive: you stacked the deck against clients in the market slide of 2007; you set up your company’s own securities to fail, secretly bet against those securities, and never told your buyers what you were doing; you dumped toxic mortgage assets on unwitting clients; etc. Several senators read aloud internal GS documents, in which these men boasted of how they had helped GS profit from the declining housing market, or described the firm’s subprime deals in scatological terms. No matter; the Goldmanites refused to show any regret for their actions, and would not admit that they had behaved irresponsibly or had anything to do with the crash of 2008. A few argued that they were in fact the victims of this financial debacle. In fact, GS behavior continues much as before, as the subsequent Greek economic crisis, in which they played a key role, demonstrates. Meanwhile, as Paul Krugman and several other leading economists have argued, indicators are that our economy is not likely to recover from the crash of 2008 for a very long time (given the historical record on these things), and that we can actually expect worse crises to come, since no significant change of mindset, financial practices, or even personnel has surfaced on Wall Street or in the U.S. government. Indeed, with the possible exception of the millions of unemployed, most Americans seem to believe that the “glitch” is over, that we dodged a bullet, and that we can keep doing what we’ve always been doing without having to “really” pay the subsequent debt.
Somewhat atypical of the American Faustian pattern was our seventh president, Andrew Jackson, whose farewell address of 1837 eerily predicted these kinds of events. In fact, his speech comes off as a pretty good characterization of Goldman Sachs. Jackson’s focus was on the behavior of banks, who (he said) think only of themselves, and never of the community. “These banks may and do operate injuriously upon the habits of business, the pecuniary concerns, and the moral tone of society,” he declared. Their bent for speculation, he warned,
"will foster this eager desire to amass wealth without labor; it will multiply
the number of dependents on bank accommodations and bank favors; the
temptation to obtain money at any sacrifice will become stronger and stronger,
and inevitably lead to corruption which will find its way into your public
councils and destroy, at no distant day, the purity of your Government."
The danger, Jackson went on, is that “the Government would have passed from the hands of the many to the hands of the few; and this organized money power, from its secret conclave, would have dictated the choice of your highest officers….The forms of your government might, for a time, have remained, but its living spirit would have departed from it.”
“The temptation to obtain money at any sacrifice,” “this organized money power,” “secret conclave”—these are indeed key elements of our Faustian bargain, ones that have, as Chris Hedges asserts, dynamited the foundations of our society. However, I believe we need to put all of this in a larger perspective, a social and even spiritual context, if you will, because it can be argued that these foundations were not all that solid to begin with. The real debt incurred by the United States took place very early in its history, and it involved choosing a way of life that was ultimately not viable and even self-destructive. In that sense, outrage at Goldman Sachs may be misplaced, because from this broader perspective, they were just doing what all good Americans are supposed to be doing—hustling, as the historian Walter McDougall characterizes the American Way of Life. McDougall argues that this way of life can actually be dated from the late sixteenth century; but let me turn to the late eighteenth instead, and follow the analysis of Joyce Appleby in her book Capitalism and a New Social Order.
According to Appleby, the colonial understanding of social organization turned on the concept of virtue. Following the European model, virtue was defined as the capacity of individuals “to rise above private interests and devote themselves to the public good.” Free men realized their human potential in service to the commonwealth, in other words, and this was the dominant definition of virtue in the colonies for much of the eighteenth century. By the 1790s, however, this began to change, and by 1800 it had undergone a complete inversion: virtue now meant the ability to look out for oneself and one’s family, nothing more: personal success in an opportunistic environment.
Appleby locates the source of this change in the impact of the English Industrial Revolution and the French and Scottish Enlightenment. The liberal concept of freedom was individualistic, based on self-interest, and lay at the heart of the new market economy. For Adam Smith, every man was basically a merchant, and a proper society was a commercial one. Through the so-called “invisible hand” of the market, the collective result of individual selfish actions would supposedly result in the greater good.
These ideas fell on receptive ears on the other side of the Atlantic. While the Federalists held on to the classical definition of virtue, the Jeffersonian Republicans were strongly attracted to the notion of laissez-faire. Thus during the 1790s in particular, the new nation began to shed its European ethos; and the organic model of society, which saw virtue in terms of reciprocal rights and obligations, began to dissolve. Literature during this period extolled the search for new commodities, and Thomas Cooper, in Political Arithmetic, wrote that “consumers form the nation.” Competition, not cooperation, would be the order of the day, and Thomas Jefferson was only too happy to distribute Cooper’s work as election campaign material in 1800. With his victory, the communitarian vision of the Federalists, which gave primacy to public over private interest, was eclipsed. The result, wrote the historian Richard Hofstadter, was “a democracy of cupidity.”
But it didn’t have to be this way. Marginalized though it was, America had an alternative tradition, dating from John Winthrop’s sermon on the Arabella in 1630. Ronald Reagan was fond of quoting the part about the “City on a Hill.” What he failed to add was the part that came after that, in which Winthrop told his flock that they would have to be vigilant so as to insure that the “good of the public oversway all private interests.” If it was a maverick tradition (although it may have included President Jackson among its ranks), it was nevertheless a vibrant one. From Emerson and Thoreau to Frederick Law Olmsted and Lewis Mumford to Vance Packard and beyond, the argument of this alternative tradition was that the dominant tradition, the so-called American Way of Life, was flawed and misguided. As opposed to the pursuit of Frederick Jackson Turner’s “outer frontier”–i.e., the geographical or material one–the alternative tradition focused on an “inner frontier” that reflected the values of craft, quality, and community. All this was rejected as “elitism” by the dominant culture, however, and got pretty much repressed very early on. Historian Sidney Mead tells us that as a result there was a loneliness and remorse in the frontier adventure, expressed in sad folks songs and gospel hymns, but that this was “a minor refrain, drowned in the great crashing music of the outward events that mark in history the conquering of a continent and the building of a great nation.” This conquest, he goes on, has been “told and retold until it has overshadowed and suppressed the equally vital, but more somber, story of the inner experience.” In his book How Cities Work, Alex Marshall argues that we could have chosen the community solution over the individual one time and again in every area of American life, but that we almost never did that. The result, he says, is that “we live in one of the loneliest societies on earth.” Indeed, between 1985 and 2004, the number of Americans who said they had no one in whom they could really confide tripled. The U.S. Census for 2000 revealed that 25% of American households consisted of only one person; the figure for New York City was nearly 50%. No other society is as isolated as ours. There is a debt here, in other words, in terms of “shadow” material–material that is now knocking at our door. In his recent book, Come Home, America, William Greider writes that the cost of this tradeoff has been a great loss, such as “the small grace notes of everyday life, like the ritual of having a daily dinner with everyone present.” He goes on:
"The more substantial thing we sacrifice is time to experience the joys
and mysteries of nurturing the children, the small pleasures of idle
curiosity, of learning to craft things by one’s own hand, and the
satisfactions of friendships and social cooperation....If we could
somehow add up all the private pain and loss caused by the pursuit
of unbounded material prosperity, the result might look like a major
political grievance of our time."
And, I would add, a major social and psychological debt. Indeed, it goes way beyond this: the data of ignorance and violence for the United States, for example, are astounding. Nearly 25% of all the prisoners in the world are incarcerated in American prisons, and 24% of the adult population says it is OK to use violence in the pursuit of one’s goals. Two-thirds of the global market in antidepressants are purchased by Americans, and in 2008 164 million prescriptions were written for these drugs. Nearly 60% of the population is sitting around waiting for the “Rapture” and the Second Coming; 45% believe that extra-terrestrials have visited the planet during the past year. Twenty percent think the sun revolves around the earth, and another 9% say they have no idea as to which revolves around which. Eighty-seven percent cannot locate Iran or Iraq on a world map. The United States ranks thirty-seventh among developed or developing nations in quality of health care. Etc., etc. As New York Times columnist Roger Cohen put it just a few months ago, if we wish to talk about American exceptionalism, we should take note of the fact that the number of our prison inmates is exceptional, the quality of our health care is exceptionally bad, the degree of our social inequality is exceptionally acute, and public education has gone into exceptional decline.
The arena of U.S. foreign policy is also a classic study of spiritual debt, of oppressing, torturing, and massacring other peoples until they finally couldn’t take it anymore. What else was 9/11 about, really? Not hard to figure out, if you study the record of our political and military interference in the Middle East. The media suppressed any real coverage of Obama’s disavowed pastor, the Rev. Jeremiah Wright, back in 2008, but in fact the man was no fool: “When you terrorize other people,” he declared, “eventually they are going to terrorize you.” This is not rocket science; it’s just Newton’s Third Law of Motion—action and reaction. New York Times reporter Steven Kinzer said much the same thing in his book All the Shah’s Men when he asserted that there is a direct line from what the CIA did to Iran in 1953–overthrowing a democratically elected government and replacing it with a torture regime–to the destruction of the World Trade Center. Even Henry Kissinger understands this, having pointed out, a year before the 2003 invasion of Iraq, that “hegemonic empires almost automatically elicit universal resistance, which is why all such claimants have sooner or later exhausted themselves.” I could write a book about it, but inasmuch as I already have, let me pass over the subject of U.S. foreign policy and refer you to the work of the sociologist Robert Bellah, in particular his book The Broken Covenant. Looking around at what constitutes daily life in America–and this in the seventies, when it was significantly better than it is today–Bellah suggested that there was something karmic about it all: “our material success,” he wrote, “is our punishment, in terms of what that success has done to the natural environment, our social fabric, and our personal lives.” In the early years of the Republic, the Philadelphia physician Benjamin Rush predicted that the nation “would eventually fall apart in an orgy of selfishness.” The crash of 2008; the subsequent, actual unemployment rate of nearly 20%; the payout, by Wall Street firms, of $18 billion in bonuses in the wake of that crash; the ranks of the former middle class lining up at food banks and soup kitchens—all of this suggests that that day has arrived.
“We will,” writes Nobel Laureate Joseph Stiglitz, “emerge from the crisis with a much larger legacy of debt…and more vulnerable to another crisis.” In fact, if you look closely at the 2010-11federal budget, the projected deficit for that fiscal year is nearly 11% of the country’s entire economic output; and by Mr. Obama’s own projections, U.S. deficits will not return to what are generally regarded as sustainable levels over the next decade. It’s not likely that they will ever return to those levels. We are a nation, in short, that cannot and will not get our collective head above water. In his book Reinventing Collapse, Dmitri Orlov writes: “We’re in hospice care. The bailouts can be viewed as ever bigger doses of morphine for a patient that’s not long for this world.” The truth is that in a whole variety of ways—social, cultural, financial, and spiritual—our liver is now being devoured, and Mephistopheles has returned to collect his due. Karma, after all, is about reaping what you sow.
©Morris Berman, 2010