Student Debt, Government Debt, and Kant at the Federal Reserve

Shredded money indicates government debt Graduate Center, CUNYHow does an English professor end up working on a book about debt? The question elicits laughter from Professor Peter Hitchcock (GC/Baruch, English). The answer lies partly in the book’s approach to the topic. The Debt Age, which Hitchcock co-edited, explores debt as a cultural phenomenon, not just an economic one. The title echoes “the Jet Age,” according to Hitchcock, because debt defines our era in the same way that the Jet Age defined the 20th century.

Cover of "The Debt Age" by Graduate Center Professor Peter HitchcockHitchcock contributed a chapter to the book called “Kant at the Federal Reserve: On the Aesthetics of Quantitative Easing.” The chapter looks at how the U.S. Federal Reserve acquired bank debt during the financial crisis and reallocated it as surplus. That process, called “quantitative easing,” provided “instant liquidity to credit markets” as the economy was crashing.

Hitchcock tapped the work of philosopher Immanuel Kant to make sense of the notion that the government could “ingest junk” and “what goes out is real money.” The process, Hitchcock said in an interview, “bore some resemblance to the way Kant tried to understand that sublime moment of engagement with art, where all other forms of measures fall away and you’re emotionally transported.” A similar dynamic occurs when investments are “unhinged from the reality of the market, but the prospect of gaining something … (is) extremely pleasurable.”

(A decade after the financial crisis, quantitative easing remains controversial. Graduate Center Distinguished Professor Paul Krugman (Economics) asked former Federal Reserve Chair Janet Yellen about it at a December 10 event at the GC. She said its purpose was to “drive down long-term interest rates,” but she acknowledged that the practice had its critics, even though she said “nothing bad came of having done it.”)

Of course, government debt is different from student debt, which is structured “more like punishment than any other form of debt,” Hitchcock said. You can’t get rid of student debt by declaring bankruptcy; your wages can be garnished, and you can even be “tossed out of your home.” The trap worsens if graduates have invested in degrees for fields that don’t pay well.

In contrast, several of Donald Trump’s companies have declared bankruptcy and cleared their debt “in court under Chapter 11. And during the ’08 crisis, corporate debt was “socialized” — paid for by the public “through austerity programs to make up for the money that was paid out” as “assets were returned to their owners,” including bankers and “corporate shills.” But a student with "a hundred grand hanging over them has to keep paying even if they’re only paying interest on interest,” Hitchcock said.

How did we end up with this system? Hitchcock says it’s partly because Americans don’t want to pay taxes, so there’s less government funding for education, and colleges have to raise tuition to make up the difference.

Some are now calling for a program to forgive student debt. “On the one hand, I feel that the U.S. economy could be restructured in a way that would permit student debt to be forgiven and to be covered,” Hitchcock said. “But that would require the T word – tax – or it might require reapportioning government spending,” for example reducing military expenditures. Unfortunately, “the practical possibilities, given the current political climate, seem quite narrow.”

Submitted on: DEC 17, 2018

Category: English | Faculty | General GC News