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Tayyab Mahmud

Reprinted from: Tayyab Mahmud, Debt and Discipline: Neoliberal Political Economy and the Working Classes, 101 Kentucky Law Journal 1 (2012-2013) (335 Footnotes)


*2 Get them to invest their savings in their homes and own them. Then they won't leave and they won't strike. It ties them down so they have a stake in our prosperity.
-Charles Harris Whitaker

If history shows anything, it is that there's no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt - above all, because it immediately makes it seem that it's the victim who's doing something wrong.
-David Graeber

He who is subjected to a field of visibility, and who knows it, assumes responsibility for the constraints of power; he makes them play spontaneously upon himself; he inscribes in himself the power relation in which he simultaneously plays both roles; he becomes the principle of his own subjection.
-Michel Foucault



Before there was money, there was debt. Before there was an American republic, there was America's national debt. Over the last three decades, the neoliberal reordering of political economy produced a “debtor nation,” a “republic of debtors,” and an “American way of debt” resting on a hypertrophied financial system. Pushed beyond the frontiers of sustainability, this “empire of debt” induced a global financial meltdown. The subsequent cost of the public rescue of the financial industry in the *3 United States alone stands at 7.77 trillion dollars, and the credit worthiness of the United States has been put into question. The meltdown-induced Great Recession sharply increased income and wealth inequality and has hit the working classes and racial minorities particularly hard. The number of those living in poverty in America stands at 46.2 million, and many cannot even afford a burial and are choosing cremation instead. The financial crisis metastasized into pervasive fiscal crises, prompting declarations of “financial martial law” and renewed assaults on the working *4 classes. Lower incomes and increased poverty have rendered the 2000s a “lost decade.” A sluggish economy with high unemployment is the “new normal,” with prospects of a steep and lasting drop in wages. The search for culprits has turned into a rush to round up the usual suspects. Personal greed, corrupt financiers, imprudent investors, and unworthy homeowners are the favored targets. There is scant recognition that the current financial crisis is a symptom of the structural crisis of capitalism and that we stand at “a transformative moment in global economic history *5 whose ultimate resolution will likely reshape politics and economics for at least a generation.” Pressing systemic and structural questions confront us: Why, when, and how did a debt-driven financialized economy come about? What changes in the labor markets induced the working classes to turn to debt? How were the working and marginalized classes incorporated into the circuits of credit? What was the impact of this incorporation? This article explores these questions by bringing into relief the production of a debt-fueled financialized economy and the laws and public policies that made this possible.

This article argues that neoliberalism, a reorganization of capitalism to secure hegemony of finance capital, is a project of the wealth-owning classes to reverse the setbacks they had suffered during the era of Keynesian welfare. This transformation entailed a rollback of the welfare state, an attack on the power of organized labor, precarization of labor markets, financialization of the economy, and exponential expansion of debt. In this ensemble, debt sustained aggregate demand, fueled liquidity to lubricate financialization, and facilitated assemblage of entrepreneurial subjects responsible for their own economic security. Public welfare was replaced by self-care and working classes were constrained to fund their private welfare through private debt, while calibrating their conduct with the demands of precarious labor markets. Debt, no longer a private choice but a structural imperative, became an instrument of control and discipline. Subprime mortgages that engulfed dispossessed communities are emblematic of the symbiosis of debt and discipline forged by public policies and the market working in concert. This neoliberal concord between debt and discipline underscores that economics is always entwined with politics, with the law as a primary suture between the two.

In order to substantiate these arguments, this article first outlines a conceptual framework suitable to explore the relationship between debt and discipline. It then focuses on the transition from Keynesian to neoliberal response to the chronic demand-deficit problem of capitalism: while Keynesianism prescribed full-employment and raising wages, neoliberalism relies on consumer debt induced by wage-compression and contraction of public welfare. The article then recounts the genesis of *6 neoliberalism by focusing on the radical use of monetary policy to trigger the transition from Keynesian welfare to the hegemony of finance, break the power of organized labor, and put downward pressure on wages. It then focuses on the role of law and public policy in forging a link between financialization of the economy and entrapment of the working classes in relationships of debt including subprime mortgages. Next, it brings into relief the increasingly precarious labor markets that add to the pressure on the working classes to turn to debt. Finally, it explores the role of debt in the assemblage of compliant subjects disciplined to conform to the logic of precarious labor markets.


I. Theoretical Framework

This article combines insights of critical political economy with the conceptual toolkit of Michel Foucault to analyze the connection between debt and discipline. While critical political economy helps uncover macro-level neoliberal economic transformations, Foucault's constructs focus on the attendant micro-level processes of market-mediated subject formation. Of particular utility are Foucault's constructs of governmentality, bio-power, and assemblage of self-caring subjects through “modes of subjectivation . . . in which people are invited or incited to recognize their moral obligations.”

Governmentality refers to “techniques and procedures for directing human behavior” and concerns the proper arrangement of the dynamic field of exchange of “individuals, goods, and wealth.” The construct trains on the practice of “economic government,” where the economy designates “a field of intervention for government.” While at a general level it refers to “any manner in which people think about, and put into practice, calculated plans for governing themselves and others,” more specifically it refers to the ensemble of technologies of governance that aim at “the care and maximization of the potential of the population.” Biopower emerges from the shift of focus in modern societies from “an exhaustive and unitary project of police . . . to the economy as a domain of naturalness.” Taken together, biopower and governmentality “refer to a manner of exercising power over a population that is directed towards maximizing its potential *7 and optimizing its capacities.” This frame where the economy displaces sovereignty as the primary field of governance is particularly useful to examine neoliberal political economy. It posits that homo economicus reappears under neoliberalism not only as a “partner of exchange” but as “an entrepreneur, an entrepreneur of himself.” Subjected to the incentive structure of the market this entrepreneur is “eminently governable. This article deploys this Foucauldian conceptual toolkit to explore the connection between the aggregate demand problem of capitalism and the disciplinary impact of private debt upon working classes caught between shrinking wages and neoliberal demands of individual responsibility and self-sufficiency.

An obstacle to any fruitful use of Foucault to analyze the debt-discipline combine is his underestimation of the role of law and the state in the exercise of power. Foucault holds that “[d]isciplines will define not a code *8 of law, but a code of normalization.” He insists that modern techniques of normalization “develop from and below a system of law, in its margins and maybe even against it.” He sees liberal political economics driving “a formidable wedge” between the powers of the state and the sphere of daily human life. Contrary to Foucault's designation of a capitalist economy as a “neutral area,” my position is that capitalism is not a de-politicized and de-subjectified market governed solely by “economic laws” but a set of politically contested social relations under the hegemony of capital. Mainstream discourses conflate capitalism and markets and see markets as entities with force and agency of their own. I argue instead that capitalism is a relation of power where the state and the market remain intertwined. Rather than directly determining subjectivities, governmentality forms a “habitat of subjectification” within fields of operation demarcated by law. Foucault comes closer to this position when he acknowledges that operations of power constitute “a triangle: sovereignty, discipline, and governmental management, which has population as its main target.” Indeed, he posits that these modalities of power are “deployed coterminously, and in complex contextual amalgams.”

In this schema, the state and the law do not evaporate, but are rather “welded to substantive, normalizing, disciplinary and bio-political objectives having to do with the re-shaping of individual and collective conduct in relation to particular substantive conceptions of desirable *9 ends.” Public policies promote an incentive structure conducive to “the shaping and reshaping of conduct” by configuring the range of choices within which individuals choose to conduct themselves. Neoliberalism, “a political project that endeavors to create a social reality that it suggests already exists,” aims to produce subjects who, under conditions of apparent autonomy, make choices to perform in ways that are in tune with market imperatives. Neoliberal disciplinary regimes aim to constitute rationally calculating individuals who bear full responsibility for the consequences of their actions; subjects who voluntarily embrace particular choices and behaviors conducive to sustaining the socio-economic order. Promotion of self-disciplined entrepreneurial behavior becomes a primary task of governance. The confluence of debt and discipline demonstrates that neoliberalism has transformed the state rather than diminishing it: “the outcome [is] not implosion but reconstitution.” This article argues that in the neoliberal era the hidden hand of the market and the iron fist of the law work in concert to forge governmentalities that suture debt with discipline.


II. From Keynesian Compromise to Neoliberal Counterrevolution

It is often claimed that neoliberalism is “more an ethos or an ethical ideal[[] than a set of completed or established institutions.” Ostensibly, the central political tenet of neoliberalism is “the negative unity of the disempowerment of government: it disables the state from interfering with the established order of society.” I discern, instead, a “programmatic coherence” in the neoliberal socio-economic transition in the U.S. that can be seen, following Karl Polanyi, as historical alternation of stages of de-socialization, re-socialization and a new de-socialization. In these *10 transitions, the state and the law play a formative role. The ideology of the “free” market notwithstanding, “the market has been the outcome of a conscious and often violent intervention on the part of government which imposed the market organization on society for noneconomic ends.” In order to appreciate the neoliberal transformation of the economy, it is critical to take account of the preceding Keynesian welfare order.

Born amidst the carnage of the Great Depression, Keynesianism rests on the premise that “[c]apitalism is a flawed system [whose] development[,][if] not constrained, [] will lead to periodic deep depressions and the perpetuation of poverty.” The linchpin of Keynesian economic theory is the underemployment equilibrium thesis and systemic failure of aggregate demand in capitalist economies. Consequently, capitalism can be stuck periodically, even permanently, in a condition of slow growth, high unemployment, and excess capacity. The recognition that “the normal state of the monopoly capitalist economy is stagnation” produced *11 the so-called Keynesian compromise between capital and labor, which animated national fiscal and counter-cyclical monetary policies calibrated to promote full employment. With this turn the welfare state was born. The chronic aggregate demand problem of capitalism was to be resolved through full employment, increasing wages with increases in productivity, and the resulting enhanced purchasing power of the working classes. The Keynesian compromise produced an activist state as a countervailing power to the market, with the state using regulations and protections to temper the creative destruction of capitalism. Welfare safety nets related to unemployment, nutrition, health, and retirement provided partial but significant reprieve from the ever-expanding commodification of life by capitalism.

Containment of finance capital was a critical component of this compromise. While Keynes's desire for “euthanasia of the rentier, of the functionless investor” and the policy goal to “driv[e] the usurious money lenders out of the temple of international finance” remained elusive, elaborate national and international regulatory regimes that were set in place to make finance capital subservient to production and national priorities. *12 The result of this macroeconomic policy framework was a prolonged era of growth, rising wages, and a linkage between Fordist mass-production and mass-consumption that is often termed “the golden age” of capitalism.

By the early 1970s, the Keynesian welfare system appeared exhausted. The costs of accelerating demands from below for expanded economic and social rights, imperial wars, and an escalating balance of payment deficits created a crisis for wealth-owning classes. Rates of profit were falling, and the share of income of wealth-owning classes shrank. Predictions of “the death of equities” accompanied “the worst bond bear market not just in memory but in history” and the Bank of International Settlements raised alarms of “a genuine dollar crisis.” The “golden age” of prosperity turned first into a “limping golden age” then into a “leaden age.” Faced with declining rates of profit and shrinking shares of wealth, wealth-owning classes desired a fundamental break with the Keynesian compromise. Breaking the power of the working classes in order to depress wages was an essential step towards this objective. This is when the neoliberal counterrevolution was launched.

*13 Neoliberalism is a strategy of wealth-owning classes to reverse the setbacks to their wealth and privilege and to expand their reach globally under the hegemony of the United States. Neoliberalism did not displace the state as much as it reformulated it, turning the “nation-state” into a “market-state.” Neoliberalism was first road-tested in Chile following Pinochet's coup d'etat, then in New York City's 1975 “coup d'etat by financial institutions against the democratically elected government,” and finally in the United Kingdom by the International Monetary Fund to reverse the course of Keynesian fiscal policies. These trial runs established an enduring principle of neoliberalism: “in the event of a conflict between the integrity of financial institutions and bondholders on the one hand and the well-being of the citizens on the other, the former [should be] given preference.” Finally, a decisive financial “coup”, indeed a “putsch”, was launched in 1979 by way of the so-called “Volcker shock,” which Paul Volcker, then-Chairman of the Federal Reserve, characterized as a “triumph of central banking.” In a radical tightening of monetary policy, interest rates were raised exponentially ostensibly to break the back of inflation, the enemy of finance capital. Note that “monetary policy *14 involves trade-offs between inflation and unemployment. Bond-holders worry about inflation; workers, about jobs.” High interest rates induced an inflow of capital as U.S. government securities became a secure investment and the dollar became the global currency of choice. Highly liquid U.S. Treasury bills expanded secondary markets in bonds and allowed the U.S. to rely on global savings to run up deficits. Henceforth, bondholders were the disciplinarians of U.S. policy makers. The “‘Volcker’ shock thus represented a convergence of imperial and domestic responsibilities.”

To be able to institute a new global capitalist discipline, the U.S. economic policy-makers had to first, in Volcker's words, “discipline ourselves.” The “induced recession” triggered by the Volcker shock was intended to repress wages and emasculate organized labor by raising unemployment to unbearable levels. While the specter of inflation was invoked, what guided the Federal Reserve was “a baseless fear of full employment.” The timing of each of the Fed's interest rate hikes substantiates that it “wanted wages to fall, the faster the better. In crude terms, the Fed was *15 determined to break labor.” Repeatedly, the Fed raised interest rates just before major union contract re-negotiations, forcing employers to squeeze wages. In order to establish its credibility with finance capital, “the Federal Reserve had to demonstrate its willingness to spill blood, lots of blood, other people's blood.” Volcker knew that there would be “blood all over the floor,” and “[t]here was blood indeed.”

The “shock therapy” of tight monetary policy, a canonical opening salvo of neoliberal structural adjustment, paved the road to jettison welfare safety nets and severed the Keynesian linkage between increasing productivity and increasing worker's wages. Sustained assault on wages and workers ensured that the distribution of gain and pain under neoliberalism would comply with the objectives of the wealth-owning classes. The downward trajectory of the rate of profit was reversed and incomes and wealth of the wealthy increased while those of the rest stagnated and declined. *16 Concurrently, neoliberalism scored “a critical victory” by “[c]hanging public expectations about citizenship entitlements, the collective provision of social needs, and the efficacy of the welfare state.”

Along with the assault on wages and workers through tight monetary policy, the power of organized labor was crushed by direct coercion. This was inaugurated by the smashing of the Air Traffic Controllers' strike in 1981 by President Reagan. Paul Volcker characterized this as “the most important single action of the administration in helping the anti-inflation fight,” and Alan Greenspan designated it “a paradigm shift” and a “political turning point.” In its demonstration effect on corporate behavior, this state action “recast the crimes of union busting as acts of patriotism.” It triggered “a *17 capitalist offensive that involved both political mobilization and relentless hostility to unions.” Henceforth, investment and relocation decisions were guided by an informal rule that “no plant which is unionized will be expanded onsite.” As neoliberal ideology of market fundamentalism took hold, unions weakened. Even labor leaders acknowledged that unions were “sliding towards irrelevance and oblivion,” and were on the road to a complete collapse.

Another prong of the neoliberal attack on wages and workers was to mobilize global labor surpluses through offshoring. As neoliberal globalization, a “disciplinary force over the powers of labor,” unfolded, union power weakened further. Liberalization of international trade and capital movements induced investments to flow to regions where prevailing political and social conditions allowed higher returns on investments. *18 Wage pressure from countries with low labor costs was transmitted to the United States. Fragmentation and global dispersal of labor markets necessitated that workers compete against one another across national boundaries. Labor movements weakened in areas of capital emigration and strengthened in areas of capital in-migration. Capital's unbridled mobility impeded states' ability to manage national economies, and with workers in different parts of the world in direct competition, labor's efforts at international solidarity fragmented. The global labor market erased territorial boundaries for the highly skilled while reinforcing borders for the unskilled. All this combined to add downward wage pressure on vulnerable jobs and, indirectly, throughout the economy.

The combined effect of these developments on organized labor was devastating. Both union membership and union efficacy sank to historic lows. Given the nature and size of union wage premium, wages were *19 directly impacted by the decline of unions. Those in lower-paid jobs and racial minorities were hit particularly hard. Decline in the value of the legally mandated minimum wage added to the burdens of the most vulnerable sections of the working classes. Anemic growth, high systemic unemployment, and a decrease in the rate of investment despite a rise in profits-all enduring features of the neoliberal era-exerted added pressure on the working classes. The Keynesian era linkage of productivity growth with wage growth went by the wayside, resulting in *20 further wage-compression and inequality. Workers, in particular married women with children, were constrained to work longer hours. In the end, the average household worked more hours for lesser wages and retiring at age 65 became an increasingly elusive goal.

Structural changes in the organization of capital added to the woes of the working classes. The paradigm of shareholder value maximization became the “zeitgeist” of corporate governance. The emphasis on shareholder *21 value necessitated squeezing out other stakeholders; job cuts, lower wages, and fewer benefits were a natural corollary. Besides reducing the wage bill, capital expenditures were reduced by cutting back investment. Capital accumulation was sacrificed in favor of income distribution benefitting the upper classes. As dividends and stock buybacks increased, reinvestment decreased, with a negative impact on productive capacity and employment. Furthermore, increased debt levels of corporations unavoidably tended to “discipline the employment relationship” as firms with higher debt reduced their employment more often, used more part time and seasonal employees, paid lower wages, and funded pension plans less generously.

*22 Financialization, another defining feature of the neoliberal era, engendered “a prolonged split between the divergent real and financial economies.” Whereas up until the 1970s “the old structure of the economy[] consist[ed] of a production system served by modest financial adjuncts,” with the neoliberal turn this gave way to “a new structure in which a greatly expanded financial sector had achieved a high degree of independence and sat on top of the underlying production system.” Far beyond its classic role of credit provision, finance was now positioned “directly at the heart of the accumulation process, essentially introducing a new sector that straddled credit and production.” The result was “exhaustion of the progressive force of capital” and reinforcement of its “increasingly parasitical character.” The pursuit of neoliberal class objectives resulted in a “divorce” between the upper classes and the United States domestic economy.

In sum, the radical use of monetary policy to attack wages and smash the power of organized labor inaugurated the neoliberal era. This was complemented by coercion of unions, globalization, focus on shareholder value, and a divorce between finance and the productive economy. These systemic changes decisively transformed the grounds of aggregate demand from full employment to consumer debt. Two mechanisms combined to create the requisite domestic demand: (1) increased consumption by wealth owning classes whose incomes now saw a steady rise, and (2) increased indebtedness of the working classes. Financialization of the economy, facilitated by public laws and policies, operationalized this historic shift.


III. Financialization, Reverse Red-Lining, and Private Deficit Spending

*23 Financialization refers to a marked increase in the volume, velocity, complexity and connectedness of financial flows and an increasing shift of finance capital from production and trade toward speculation and intermediation. In the U.S., financialization entailed both the exponential expansion of financial institutions and instruments to accommodate corresponding masses of assets and debt and the hegemony of the corporate managerial criteria of the primacy of value for the shareholders. These developments furnished the prerequisites for the dramatic growth of household debt and the connection between debt and discipline. Public law and state policy played a foundational role in this transformation.

Neoliberalism's turn to financialization as a systemic response to the crisis of profitability is in tune with historical cycles of capitalism. However, in a departure from historical precedence, financialization of the U.S. economy served added objectives through innovative means. It increased both the reach and the depth of the credit economy whereby debt became the primary catalyst for aggregate demand. Securitization of debt was a considered public policy aimed to help boost demand and liquidity for financial markets. As early as the 1980s, Alan Greenspan, the *24 “maestro” of neoliberal financialization, articulated a primary objective of American foreign economic policy: “diversifying international securities portfolios . . . disproportionately in dollars.” Securitizing debt and channeling it into global financial markets enabled syphoning of global savings to sustain fiscal and trade deficits of the U.S.

The interconnected shift towards financialization and globalization linked the dramatic growth of household debt with access to global liquidity. It facilitated Americanization of global finance, helped to entrench the imperial role of the U.S. into global finance, and made it possible for global savings to flow to the U.S. at an unprecedented scale. The global capital flows now resembled a game of marbles in which, after each round, “the winners return their marbles to the losers.” These capital flows secured by a deficit-ridden military power functioned as “an imperial tithe,” and enabled the U.S. to become “the superpower *25 of borrowing,” making the current account a “meaningless concept” for U.S. policy makers. The escalating U.S. current account deficit and debt-driven consumer spending allowed the U.S. economy to function as “the ‘Keynesian engine’ of the global economy.” Financialization, then, is a kind of “paradoxical financial Keynesianism” whereby demand was stimulated by asset-bubbles, and these bubbles together with the reserve currency status of the USD made the U.S. “catalyst of world effective demand.”

Again, the financialized economy turned debt, rather than full employment, into the propellant of aggregate demand. Here was “privatized Keynesianism” in action; instead of governments taking on debt to stimulate the economy, individuals and families, including the poor, did so. Stagnating and declining wages triggered a marked decline in savings. However, even in the face of stagnating wages and declining savings, the boom of consumption during the neoliberal era was “without precedent,” making the U.S. consumer “by far the most important consumer in the world.” As shrinking wages were insufficient to generate *26 effective demand, consumers turned to debt by partaking of “overextended credit.” This turn to debt-driven consumption was facilitated by public policy and the market acting in concert, a combination appropriately characterized the “state-finance nexus.” The intellectual justification for new regulatory regimes was furnished by the overarching neoliberal ideology augmented by the “efficient market hypothesis” that saw all markets as efficient and self-adjusting entities which, left to their own, would produce efficiency, innovation, supply and demand equilibrium, and stability. Mythologies of neoliberal deregulation notwithstanding, *27 elaborate new regulations were fashioned to pave the way for the ascendency of finance capital. After over three decades of the neoliberal era's ostensible deregulation, the financial sector remains “among the most heavily regulated sectors of the American economy.” During the heyday of neoliberal “deregulation,” the U.S. had a regulatory regime with over 100 authorities overseeing different segments of the financial market.

Critical legislations that enabled neoliberal financialization included: the Depository Institutions Deregulation and Monetary Control Act of 1980, which eliminated interest rate caps; the addition of the 401(k) provision *28 to the tax code in 1980, which channeled savings into private pension plans; the Garn-St. Germain Depository Institutions Act of 1982, which allowed Savings and Loan Associations to engage in commercial lending and corporate bonds; the Secondary Mortgage Market Enhancement Act of 1984, which permitted investment banks to buy, pool, and resell mortgages; the Tax Reform Act of 1986, which created the Real Estate Mortgage Investment Conduit, making mortgage-backed securities more attractive; the Financial Institutions Reform, Recovery, and Enhancement Act of 1989, which rearranged the government-sponsored mortgage-facilitating entities; the Interstate Banking and Branching Act of 1994, which allowed banks to operate across state lines; the Private Securities Litigation Reform Act of 1995, which made it difficult for securities fraud plaintiffs to plead fraud; the Community Reinvestment Act of 1977, which directed financial institutions to expand their market base; the Gramm-Leach Billey Act of 1999 that permitted comingling of commercial and investment banking; the Commodities Futures Modernization Act of 2000, which left derivatives out of regulatory oversight; and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which made it more difficult for consumers to seek bankruptcy *29 protection. The courts and regulatory agencies played a supportive role in the interpretation and enforcement of these provisions. This new legal terrain was indispensable for the financialization of the U.S. economy and consolidation of debt as a primary source of aggregate demand.

Law and public policy also played a critical role in enhancing liquidity, the lifeblood of finacialization. This blood was first drawn from workers' savings and expanded debt-creation through extraordinarily loose monetary policy. The 401(k) provision of the tax code inaugurated siphoning of workers' savings through privatization of pension funds. Tapping this colossal reservoir of liquidity served three related functions: it fed the ever growing indebtedness of firms and households, gave workers a stake in the health of the financial markets, and augmented the ideological ensemble of ownership society, workers-as-shareholders, and “shareholder nation.” The other crucial step in liquidity generation was expansion and securitization of debt. In this context, “the purpose of making loans, mortgages and offering credit cards [[was], increasingly, the generation of tradable financial assets based on the cycle of monthly repayments.” Neoliberalism, which was inaugurated by a radically tight *30 monetary policy, now turned to a radically loose monetary policy to fuel liquidity by keeping interest rates at historical lows. Financial markets relied on the Fed to keep the system awash with liquidity to sustain the wealth-effect produced by credit-driven financialization. Particularly in response to the dot-com crash of the early 2000s, the Fed lowered interest rates and kept them low, incessantly creating liquidity and a credit-fueled boom. This propelled “‘artificial liquidity,”’ “‘liquidity black holes,”’ and “Ponzi finance,” the ubiquitous characterizations of the financial boom that rested substantially on derivatives based on bundled and securitized debt, particularly mortgages. An accompanying recalibration of securities laws facilitated the change from lend-and-hold to lend-and-distribute banking and triggered “in-house debt collection” to increasingly give way to a “debt sale market in personal finance.” The exponential rise in subprime mortgages was made possible by these general policies that “stoked mortgage bonfire.” The subprime sector of the mortgage finance *31 industry grew at an annual rate of 25 percent between 1994 and 2003, and was “the key to extending the asset-based welfare vision.”

Far from being a “‘democratization of finance,”’ subprime mortgages testify to the enduring grammar of modern power's engagement with alterity as one of engulfment/subordination and not of exclusion. The subprime-lending boom was “‘reverse redlining”’-marginalized groups traditionally denied credit became targeted with high-risk credit. It demonstrated that, to grow and increase profits without engaging the sphere of production, finance needed to spread its reach beyond the middle class to the poor. Home ownership had long been advocated as an effective tool of social control, indeed, a “‘prophylactic against mob mind.”’ The liberalized financial markets were well-positioned to deploy this tool on an ever-widening scale. With the neoliberal turn, equity markets propelled by inflow of funds from newly created private pension schemes began to rise and “[b]ig companies . . . increasingly relied on equity markets for finance . . . .” In response, banks pushed lending into more marginal markets, developed new financial instruments, and invented new ways *32 to make mortgage loans to lower-income workers whom lenders had previously avoided. Alan Greenspan expressly acknowledged this move: “innovation and deregulation have vastly expanded credit availability to virtually all income classes.” Ferreting out economically marginal groups for mortgage and consumer credit expanded the scope of the financial market. “Bottom-feeding” on the “unbanked” and “uncarded ethnics” became a lucrative growth field. In this process “[e]conomically marginal people constituted, in effect, a ‘developing country’ within the United States.” African Americans, who historically had limited access to credit markets on account of racial prejudice and discrimination, now became “the most profitable group to lend to.” Gender also intersected with race and class in this schema. As women constituted an ever-increasing proportion of recipients of subprime loans, “single, female, with two children, in her first home” became the profile of a typical subprime borrower seeking foreclosure counseling.

For the borrowers, the subprime mortgages boom was “asset-based welfare”; a “welfare trade-off” emerged between housing as a social right secured by public resources and homeownership as a mode to accumulate and store wealth. Neoliberal contraction of the redistributive *33 function of the welfare state was complemented by “privatization of deficit spending”-creation of aggregate demand through private debt. Demand for credit and complex financial products did not naturally flow from their supply; it had “to be created, and liquidity relied critically on demand being whipped up.” Financial markets cultivated expectations of infinite increases in asset prices and the resulting wealth-effect-an inflationary increase without which it would be impossible to co-opt the have-nots.

Legal regimes played a pivotal role in the expansion and securitization of sub-prime loans and in their channeling into global financial markets. It was “the securitization rules themselves made all this possible, and indeed desirable.” State intervention in the home mortgage business had started with the creation of the Home Owner's Loan Corporation in response to the collapse of the property market and the real estate bond market following the Great Depression. New Deal legislation designed to support the housing market created FHA to provide lenders with protection against losses and established Fannie May to buy mortgage loans of banks, thus providing them liquidity to expand mortgage lending. For over four decades, such public backing facilitated expansion of home-ownership by high-wage *34 earners-the so-called “middle class.” As wages started to stagnate in the 1970s and the existing mortgage market was saturated, public policy promoted a broadening of this market by inducing the financial sector to reach new borrowers and develop new financial instruments. Often discourses of civil rights and equal access and opportunity were deployed to effectuate the changes. Salutary as the stated objectives were, bringing the marginalized into circuits of credit at a time when financialization and debt-driven demand generation was taking root, the consequences for the purported beneficiaries were disastrous. Ginnie Mae, created to cater particularly to low-income and minority borrowers, invented mortgage-backed securities. Freddie Mac was created with the specific purpose of securitizing mortgage loans and selling those in secondary markets. The first-ever mortgage-based security sale by Ginnie Mae in 1970 was hailed by the Secretary of Housing and Urban Development as “a revolutionary step.” Subsequent legislations explicitly forbade redlining practices and required Fannie Mae and Freddie Mac to concentrate more on the lower income and minority groups. Soon, next to the Treasury Department, Freddie Mac was the largest debt-issuing institution in U.S. capital markets. Wall Street became “addicted to mortgage-backed *35 securities” and the demand for subprime loans by banks and investors outstripped their supply. By modifying Keynesian-era legal regimes and fashioning new ones, neoliberal policies had ignited the subprime mortgage frenzy. With foreigners holding one-third of the debt of the two agencies, compared with 13 percent of the U.S. mortgage-backed securities market in general, Freddie Mac and Fannie Mae, together “the single largest player in the game,” served as the key link between global finance and the U.S. mortgage market. Hailed at the time as instruments of progressive expansion of home-ownership, the expanded borrower-base and mortgage-backed securitization had three inter-linked effects: ever-larger sections of the working classes were brought within the fold of housing debt, the secondary markets for these securities helped syphon global savings to the U.S., and the size and profits of finance exploded.

The entrapment of the working classes and the marginalized into circuits of credit, then, resulted from the financial sector's search for depth and liquidity as debt became the primary instrument to sustain aggregate demand. Redesigned legal regimes and public agencies were critical to this transformation.


IV. The New Economy and Precarious Labor Markets

The turn to debt by the working classes was also propelled by the rise of precarious labor markets. Besides the demise of unions and *36 compression of wages, compelling corollary changes in the employment landscape have included the reduction of socially necessary labor, the rise of flexible contingent labor, and the growth of ever-vaster pools of free labor. In a new “age of the superfluous worker,” a growing segment of the working class forms part of the “precariat,” signified by jobs that are temporary, low-wage, and without benefits or protections. The contingent workforce includes independent contractors, contracted workers, leased employees, part-time employees, and temporary employees. Estimates of the numbers of contingent workers range between twenty to thirty percent of the work force. This “crisis of work” and “contingency explosion” issued from firms' drive to maximize labor market flexibility, changes in information technologies, the rise in forms of work that avoid employee status and its accompanying legal structures, and firms' desire to avoid unions. Fordist era forms of work, based on full-time employment, *37 clear-cut occupational assignments, and a career pattern over the life cycle eroded. Racial discrimination and the widespread availability of flexible peripheral labor markets combined to increase social inequality and marginalization. The rise of contingent work also directly contributed to the decline of unions and wages. As a result, an increasing portion of the workforce received less wages and benefits.

Revolutionary changes in information and communication technologies combined with changes in the organization of production increasingly changed the very nature of work and attendant social rights. Reduction of labor costs in both private and public sectors was achieved through lean production and outsourcing. While just-in-time production organized labor in the most flexible way possible to avoid accumulation of inventory, outsourcing helped avoid social costs of labor. With the demise of Fordist *38 and Taylorist production systems, direct command and control over the production process was increasingly substituted with marketplace command. Taylorist modes of direct allocation of tasks were increasingly replaced by indirect mechanisms based on imperatives to deliver and unavoidable pressures of precarization of the wage relation. The labor force had to adapt to the increasingly volatile process of value creation; indeed, the pressure was to constantly “reinvent oneself.” The just-in-time inventory management and optimal scheduling led to just-in-time labor. The working classes faced new market imperatives to be adaptable and “multivalent.” Flexible production produced flexible individuals who changed jobs frequently and whose social relations were increasingly transitory. As a result, a growing number of workers lived “neither inside nor outside the world of work, but along its margins. . . . [inhabiting] a new netherworld, the vocational purgatory of the ‘unjob.”’

In a financialized economy, “profit, like rent, increasingly depend on mechanisms of value expropriation that proceed from a position of exteriority in respect of the organization of production.” The new speculative profit-making rested on the value-making capabilities of “common work.” Labor practices made possible by new information *39 technologies expanded the scope of immaterial labor, helping to blur the line between work and non-work. As a result, increasingly processes of production of value traditionally confined to the place of work spread “throughout the whole society.” Here we see deployment of bio-labor: “life put to work, outside the times officially certified by private law.” The new order becomes one of externalization of the production process, of “crowdsourcing” and “unpaid labor” of the crowd. The consumer-as-producer phenomenon is part of this complex. Bagging one's own groceries and self-service at IKEA are emblematic examples of externalizing fixed and variable costs. Similarly, open-source information systems shift costs of labor to consumers through mechanisms like externalization of program evaluation, beta-testing, user technical assistance, and open-source program development.

The information/communication revolution resulted in the centrality of cognitive/non-material labor, the loss of the strategic importance of fixed capital, and the transfer of a series of productive-instrumental functions to the living body of labor-power. This rapidly unfolding phenomenon *40 is evocatively labeled “cognitive capitalism” Knowledge-based innovation and value-production by highly skilled precarious labor are distinct features of cognitive capitalism. Armed with new technologies, immaterial organizational systems “pursu[ed] workers in every moment of their lives [and] the work day, the time of living labor, is extended and intensified.” Modalities of value production moved “from factory to the social factory.” The information revolution procreated a new labor culture that had absorbed the need for liberty and informality born of the preceding cycle of social struggles, imported the dissolution of the borders between work-time and life-time from academic labor, and possessed the ideology of entrepreneurship. It produced a new economic model capable of generating value by mass use of the internet. In this realm, ubiquitous activities such as using a search engine, visiting a website, even carrying a cell phone that transmits the carrier's location, generate opportunities for enterprises to harvest value without costs.

”Skill-biased technological change” is a dominant explanation for inequality trends in the United States, with the computer/internet revolution and the failure of education to keep pace with the growing skill demands of the knowledge economy cited as the main reasons. Analysts discerned a “new digital divide” that runs along class and racial *41 divides and is marked by deep socio-economic distinctions between “the networkers the networked the switched-off” and between “the deciders the participants the executants.” In this context, higher education and incessant skills-development play an increasingly critical role in establishing an individual's ranking in the hierarchy of employability. At the same time, public education faced disinvestment, and the cost of education spiraled. As a result, reliance on debt for education and retraining soared. Surging above one trillion dollars, student-loans now exceed credit-card and auto-loan debt.

In the context of a financialized economy, with precarization of labor, demands for enhanced skills, and contraction of public support for education and re-training, increasing reliance on debt to re-train, indeed to live, becomes the only available option for the working classes.


V. Discipline of Debt

Throughout history, debt both lubricated circuits of value extraction and acted as a disciplinary device. From Athenian debt-bondage to contemporary labor trafficking, debt-peonage has been part of labor management regimes across a variety of modes of production. The historical role of debt in moral discipline is evidenced by the fact that in all Indo-European languages, words for debt are synonymous with those for sin or guilt. Debt has also played a foundational role in modern imperial *42 domination. During the colonial era, colonial powers often intervened militarily to enforce debt contracts. After decolonization, conditions accompanying international credits were deployed to control public policies of post-colonial formations. The recurrent international debt crises of the last three decades were used to enforce neoliberal restructuring of economies of debtor states. Debt levels of corporations unavoidably tend to discipline the employment relationship as firms with higher debt reduce their payroll, use more part time employees, pay lower wages, and have anemic pension plans. The disciplinary impact of debt in all these instances issued from direct coercion and/or express provisions of debt contracts. What is distinctive about the neoliberal era is the self-discipline of debtors procreated by governmentalities that are unencumbered by direct coercion or express undertakings.

In the perennial search for effective modes to contain and control the dispossessed, debt surfaced on the agenda of American ruling classes at least as early as the early 1900s. In particular, home mortgage was advocated as an effective tool of social control, indeed, a “prophylactic against mob mind.” As organized labor took roots, captains of industry recommended that workers should be induced to “invest their savings in their homes and own them. Then they won't leave and they won't strike. It ties them down so they have a stake in our prosperity.” While a beginning was made along this agenda during the Keynesian era, neoliberal financialization dramatically expanded the scope and reach of credit in general and mortgage-driven home-ownership in particular. Neoliberalism opened up new frontiers for the disciplinary operations of debt: self-discipline by indebted masses engulfed by the financialized economy and refashioned governmentalities.

Neoliberal economic policies and an attending discourse of personal responsibility furnished the grounds for the symbiosis of debt and discipline. Neoliberal rationality aims at congruence between a responsible and moral individual and an economic-rational actor: a prudent subject whose moral quality rests on rational assessment of economic costs and benefits of their actions. The prescription of subjectivity to obtain interiorization of the market's goal in the context of precarization of labor is accomplished *43 through generalization of debt. The result is an assemblage that “accepts” itself as a homo economicus, “a dependent subjectivity, a subjectivity conforming to capital, and in which the rationality of homo economicus, of human capital, replaces the idea of social rights and common goods.” This ensures self-discipline whereby time and life both within and outside the bounds of any specific site of production remain subjected to value production.

Neoliberalism fashioned “workfare regimes” intended to “throw a long shadow, shaping the norms, values, and behavior of the wider population, and maintaining a form of order.” Evocatively styled, the Personal Responsibility and Work Opportunity Act of 1996, ended “welfare as we know it” and instituted “workfare”: forced deskilled wage labor as the sole means of support on the pretext of setting the indigent on the road to “independence.” Similarly, the Quality Housing and Work Responsibility Act of 1998 radically reduced public housing and turned the indigent towards private rental markets. Workfare underscored the imperative of wage labor by issuing “a warning to all Americans who are working more and earning less, if they are working at all. There is a fate worse, and a status lower, than hard and unrewarding work.” The new behavior-related rules of workfare aim “to build habits of responsible behavior.” “Stripped *44 down to its labor-regulatory essence,” workfare seeks “to make ‘docile bodies' for the new economy: flexible, self-reliant, and self-disciplining.”

Under neoliberalism, responsibilization emerged as the dominant register of subject-formation. Responsibilization turns on the ubiquitous neoliberal construct of “human capital.” Through the lens of human capital, wage is not the selling of labor power but an income from a special type of capital. This capital is integral to the person who possesses it and consists of both physical predispositions and the skills acquired as a result of “investments” in education, training, and physical capacity. This focus on predispositions and acquired capacities raises troubling questions of race, genetics, family, and class. In the “human capital” discourse, a human being is deemed a “machine-stream ensemble,” a “capital-ability,” indeed “a machine that produces.” This actively responsible agent is a subject of the market and is obliged to enhance her quality of life through her own decisions. In this schema, everyone is an expert on herself, responsible for managing her own human capital to maximal effect. A politics of the self emerges wherein we are all induced to “work on ourselves” outside the purview of the social. This biopolitical governmentality produces a subject to represent herself as enough for herself, complete and self-*45 sufficient: a “narcissistic separation of living labor from the public sphere . . . [where] labor becomes individual business and/or human capital.”

As welfare safety nets are removed, workers are induced to think of themselves as free-standing businesses that shield themselves, much as corporations do, by measuring and apportioning risks and by diversifying operations and investments. Indeed, cheerleaders of neoliberal globalization are rather explicit: “We're all entrepreneurs now, or should be.” Risk, which was deemed harmful and needed careful calculation and management by actuarial experts, is now represented as an opportunity to be negotiated, cultivated, and exploited by the entrepreneurial financial subject. Ideologues of neoliberalism warn against “diffusing, equalizing, concealing, shuffling, smoothing, evading, relegating, and collectivizing the real risks” and argue “with more of the risks borne by the individual citizens . . . the overall system may be more stable.” This assemblage of the risk-taking entrepreneur is facilitated by attendant discourses of rational economic actors, efficient and self-correcting markets, and the ostensibly tamed business cycle. This calls forth a particular subjectivity by demanding that individuals increasingly act as entrepreneurial investor subjects as part of a wider individualization of risk. In this schema, “a personal loan was taking responsibility for life's uncertainties.”

*46 With the neoliberal call for individuals to secure their freedom, autonomy and security through financial markets and not the state, practices of investment, calculation and speculation became signs of initiative, self-management, and enterprise. Neoliberal economic theory rests on the notion of the “‘rational individual,’ a fantastic creature that aims exclusively at private gain, has no altruism and strictly calculates the necessary means to achieve desired ends.” Eliding the fact that much of human behavior is irrational, neoliberalism expects individuals to rationally evaluate risk. Indeed, in the neoliberal ensemble, “risk itself is being more positively evaluated,” with the result that “investment appears as the most rational form of saving.” In the assemblage of investor/entrepreneur subjectivity, “[w]ithout significant capital, people are being asked to think like capitalists.” The consolidation of finance as a way of life introduces “a new set of signals . . . as to how life is to be lived and what it is for.” Everyday life is increasingly framed as a space of investment, and the individual is positioned as an investor in a life project to continuously pursue opportunities and negotiate risks in the expectation of rewards. One is engulfed by information about finance in the news media, particularly the ubiquitous stock market ticker-tape on television, that “breathe[s] life into finance, turning it into a living organism.” Tying everyday practices to global financial networks-retirement plans, pensions, purchase of goods on credit, repayment of credit bills, credit cards, student loans, and mortgages-induces the self-fashioning of financial subject *47 positions and identities. In this context, finance becomes “a way of working money over, and ultimately, a way of working over oneself.” Finance, then, by constituting a primary frame of interpellation of subjectivity, became a primary “technology of the self,” and financialization becomes “a practice of social control. . . . compatible with democratic societies where order is based on the formalized participation of great masses.” The “command devices” of this practice exist in “the hybrid zone where the political economy meets social psychology.” In the wake of the displacement of the welfare state by neoliberal reordering of the economy, personal well-being and financial security becomes increasingly bound up with the fortunes of the international financial markets through pensions, mortgages, and stocks. The result is inescapability of finance as everyday life becomes increasingly financialized. It leads individuals to believe that their well-being depends more on financial markets than on demands for higher wages and claims on public resources. In this context, to be a leveraged mortgage debtor is to be a responsible and self-disciplined entrepreneur.

The Keynesian productivity-wage and production-mass consumption connections are substituted with a debt-consumption connection driven by the so-called wealth-effect, an evocative instrument of this mode of control and discipline. The wealth-effect is tied to the emergence of “an asset economy,” which, in turn, results in a “‘patrimonialization’ of behaviors.” The wealth-effect, “a sort of illusory social insurance for the crumbling of Fordist social security” induced by increases in asset value, particular stocks, and housing, “affects consumption behaviors more than the expected wealth due to an increase in wages.” Indeed, debtors often harvested the wealth-effect, further fueling aggregate demand: cash-out volumes for all prime conventional loans amounted to $26 billion in 2000 *48 and reached $318 billion in 2006. In effect, the working classes “used asset-growth to substitute for wage-growth.”

In this context, for the risk-taking entrepreneurial subject, borrowing and living with debt appear both essential and rational. Living with debt, however, is living in a “credit panopticon,” with disciplining effects both at the inception of debt and through its career. The disciplinary controls of standardization and synchronization exercised through the “credit panopticon” displace trust as a grounds for lending. Critical to note here is that credit scoring did not aim at exclusion of deviants but provided the grounds for inclusion and differentiation in mortgage lending, a development critical for reverse redlining. Credit scoring knowledge produced debtors sorted, targeted and governed through the prism of risk-based pricing. It also produced new forms of responsible and entrepreneurial self-discipline and mortgagors as leveraged investor subjects. In this context, charging higher interest rates to racial minorities became seemingly rational and above political questioning. Finally, the subprime mortgage market partook of the benefits of the neoliberal phenomenon of responsibilization of entrepreneurial self, whereby individuals were induced to provide for *49 their own freedom and security through opportunities offered by the market.

The marketing of credit is built around the time-and-space-specific constructs of the “normal” consumer held within financial institutions. These normative expectations inform profiles of consumers including embedded understandings of normalcy and deviance. Therefore, in order to qualify for debt, a borrower has to demonstrate subscription to such standards of normalcy. Internalizing such constructions of normalcy, debtors who use credit disproportionately “feel affluent” and think of themselves as “ordinary.” Once indebted, debtors become subjected to normalization by debt and are less likely to claim nonconformist views or indulge in nonconformist conduct. It was noted as early as the 1920s that debt-encumbered homeowners are less likely to go on strike. Later, during the neoliberal era, Greenspan echoed that the more debts workers have, the less free they are to strike. Conformity with rules of the new financial and labor markets renders the debtor a responsible subject called forth by neoliberalism. Thus disciplined, the atomized and self-sufficient *50 subject of the market becomes incompatible with projects of solidarity, collective rights, and anti-subordination.


VI. Just in Case: Hyper-Extended Penal Apparatus

To be on the safe side, the neoliberal order did not leave the project of disciplining the working classes entirely to debt. It complemented the “invisible hand” of the precarious labor market and burdens of debt with the “iron fist” of the penal state. Indeed, mass incarceration and a “plague of prisons” have become a defining feature of the neoliberal age.

Betraying “an eerie similarity” between criminal justice and welfare reform, the neoliberal era is marked by a “culture of control,” *51 “penalisation of poverty,” and an “enlargement and exaltation of the penal sector” of the state. A renewed deployment of the penal apparatus “increase[es] the cost of strategies of exit into the informal economy of the street” and “neutralizes and warehouses” its most disruptive factions or those “rendered wholly superfluous” by the new economy. While between 1950 and 1970 the imprisonment rate declined, it saw an exponential boom after 1975. Between 1975 and 2000, the total incarcerated population increased by 500 percent. In the United States today, over seven million adults are subjected to the correctional system, including 2,266,800 incarcerated and 4,887,900 under criminal justice supervision outside prisons. Racial minorities and the economically marginalized constitute disproportionate parts of this population. Since 1975, “corrections” posted the fastest expansion in public expenditures and has become the third largest employer in the U.S. As public housing has been dismantled in large part as part of welfare reform, prisons have “effectively [become] the country's main public housing program.” In tune with the neoliberal agenda of turning the state into a market-state, the penal system has been increasingly privatized. For-profit private prisons, *52 reinstituted in 1983 after having been outlawed in 1925, saw an exponential growth, yielding handsome profits for the burgeoning industry. In line with replacing taxes with user- fees, federal and state governments increasingly adopted “carceral taxation” to have inmates pay for the cost of their own incarceration. Coercive discipline, of course, begins in the streets. The “militarization” of the American police that started with the “war on drugs” and accelerated with the “war on terror” was on display as the Occupy Movement erupted in late 2011.

For the working classes, the expanded deployment of the penal arm of the state increases the cost of not participating in the increasingly precarious labor markets. The prospect of falling off the treadmill of the financialized debt-driven becomes more frightening than ever. This further substantiates the position that law and the state remain critical enablers of subject-forming governmentalities.


Conclusion

This article has combined insights of critical political economy with Michel Foucault's constructs of governmentality, bio-power, and assemblage of self-caring subjects to explore the symbiosis of debt and discipline in the neoliberal era. Laws and public policy were indispensable for choreographing the displacement of Keynesian welfare by the hegemony of finance capital, the hallmark of neoliberalism. Strategic use of monetary policy and radical rearrangement of legal regimes facilitated financialization of the economy, broke the power of organized labor, and expanded debt to sustain aggregate demand. Financial markets extended their reach and expanded liquidity by bringing ever-increasing sections of the working classes within the ambit of the credit economy. Faced with shrinking welfare, wage pressures, and precarious labor markets, working classes had little choice but to fund their basic needs through debt. The subprime mortgage boom testifies to this structural transformation. Neoliberal rationalities procreated constructs of individual responsibility and human capital that facilitated assemblage of subjects who were coaxed to engage the financialized economy as risk-taking entrepreneurs. Engulfment in relationships of debt induced self-discipline and conformity with the logic of the financialized economy and precarious labor markets. Neoliberal *53 financialization of the economy, thus, has transformed capitalism and recruited within its modes of governance the transformation of subjectivity. Neoliberalism emerges as a regime of immanent social control through the market. Public policies drew the frame for conventions and norms of social practice and shaped the horizon within which individuals pursued strategies of economic survival and security. State power created a field of possibility within which market governmentality instilled in the subject an understanding of herself as capital. To live and survive in the debt-fueled financialized economy, this understanding had to be reproduced in practices of daily life. This ensemble sutured debt with discipline.

For three decades, neoliberal financialization combined with globalization contained the crisis of profitability and produced debt-encumbered self-disciplined working classes. In the process, however, it sowed the seeds of a larger crisis. Syphoning of savings from the periphery to sustain demand in the core and securitization of subprime mortgages to generate liquidity had its limits. Pushed beyond the frontiers of sustainability, this empire of debt collapsed. Securitization of debt, designed to spread risk, now spread contagion. The result was the 2008 global financial meltdown and the resulting Great Recession. This trajectory underscores the history of capitalism; it never solves its foundational contradictions and tendencies to crisis, it only transforms them.

The magnitude of the ongoing crisis created by neoliberal financialization is alarming. The global losses of the financial sector exceed 3.4 trillion dollars, and the bill for public rescue of financial institution exceeds 20 trillion dollars. Worldwide, over 50 million jobs were lost, 200 million working people slipped below the poverty line, and high unemployment has become the “new normal.” Value of derivatives at 596 trillion dollars dwarfs the entire world output of 48.6 trillion dollars. By 2014, government debt of G20 countries is projected to be 120 percent of GDP. The credit worthiness of the U.S. stands questioned and the *54 status of the dollar as the dominant global currency is in jeopardy. The policy responses to the crisis thus far are consistent with the track record of the last three decades: using crises to reinforce the priority of financial institutions and bondholders over the well-being of working classes. The myriad policy responses have stubbornly refused to ease the debt burdens of consumers and sovereigns, lest the disciplinary role of debt falter. There have been five typical policy responses to the crisis thus far: (1) massive injections of liquidity into the financial system and bailouts of major financial institutions; (2) imposition of fiscal discipline through austerity measures, turning governments into collection agencies for the bond markets; (3) accelerated hollowing out of welfare systems and further pressure on wages; (4) activation of racist xenophobia to recalibrate the boundaries of legitimate membership in society; and (5) acceleration of militarization and use of direct violence both locally and globally.

The crisis and the policy responses have triggered resistance from below. From the Arab Spring to Greek general strikes and from the Occupy Wall Street Movement in the U.S. to mass demonstrations in London, new spaces and modes of resistance are being forged. However, finding a way to respond to the disciplinary function of debt is yet to achieve priority on the agendas of these movements. It is imperative that theory and praxis aimed at emancipatory transformation and global justice take account of the nature and magnitude of the contemporary crisis and the implications of policy responses on the offer. In particular, we must focus on how to deal with the new and refurbished disciplinary regimes that are reinforcing the discipline of debt through national policies to transfer all costs of the crisis to the working classes and the marginalized. Popular democratization of finance through management of finance as a public utility must be high on the agenda of popular movements. An urgent challenge is to explore agendas, coalitions, and organizational forms of resistive social movements suitable to pursue popular democratization of finance. Also needed are designs of political and economic governance conducive to organizing banking and finance as public utilities. The current crisis has opened up the possibility of alternative social orders and modes of life. What shape the future will take depends in no small measure on how contending social forces will confront the perennial question of finance and the relationship between debt and discipline.


. Professor of Law and Director, Center for Global Justice, Seattle University.