Financial Insecurity Ruins Our Lives: Let’s Change the Game

Although the frontal façade of this essay is “policy analysis of how public finance can solve poverty,” this is really an attempt to explain, at a fairly (but not completely) personal level, why I do what I do.

americans-poverty.jpgMuch of the current social hand-wringing about American capitalism is focused on inequality, the phenomena of one class possessing much more wealth than another class. We know that the U.S. is the most unequal of all Western countries, a fact exacerbated by the U.S.’s notable lack of social mobility. What we know about inequality is certainly disturbing, but it is at least as important to think about the effects of deprivation itself. That is, what stresses, illnesses, problems, hindrances, and injuries are manifest in people who do not have the financial liquidity to take care of themselves and their loved ones?

We are sometimes reluctant to have that conversation because we still carry our ancestors’, ministers’, and moral philosophers’ assumptions that deprivation is the fault of the deprived. But if, as we will explore later, poverty is a structurally unnecessary condition, then that should change the moral conversation considerably. And the evidence of widespread mental and physical harm attributable to poverty also suggests that it is not a “character-builder,” it doesn't make us stronger, it doesn't inspire us, and it doesn't help us grow individually or collectively. In any case, if we were to eliminate poverty (which we could), there would be plenty of other personal and collective challenges facing us; we would simply be in a lot better shape to assess and deal with them.

Recent research by the Center for Financial Services Innovation (an organization devoted to designing products to promote “financial health”) concludes that fifty seven percent of American adults (138 million people) are struggling financially. Some of us can’t make ends meet in any given month. Others are a bad day away, a bad week away, a job loss away, or subject to similar contingencies. Widespread financial insecurity is intensified by things like the student debt crisis. It occurs in a larger social contexts where the bad choices of a few big banks, the closure of some businesses, a spike in food prices, or unexpected natural or social disasters could, at any given time, greatly multiply that insecurity.

That’s the condition we’re in. As to the effects, which I see around me every single day, they are simply ruinous. Financial insecurity ruins people’s lives. It wrecks families, ruins personal relationships, destroys dreams, and demoralizes communities. It breeds hatred, violence, and identity-based resentment. The Tavistock Institute’s April 2014 study (a British study) on how poverty affects personal relationships is sobering. “Poverty and economic hardship have a negative effect on relationship quality and stability and cause a greater risk of relationship breakdown,” the study concludes, and its authors carefully document the consistency of those findings with others.

There is clear evidence that financial hardship is a key factor in increasing the strain on couple relationships and that poverty is a cause as well as a consequence of relationship breakdown. A series of robust quantitative and longitudinal studies, in particular those of Conger and Elder (1990; 1992; 1994) on economic stress theory, have shown that financial difficulties have a negative indirect effect on couple relationships. Poverty has a direct impact on parental mental health difficulties and depression (especially for mothers), which in turn negatively impacts on the couple’s relationship by increasing couple conflict, hostility in couple interactions and reducing warm and supportive behaviours. It also reduces relationship quality for couples including perceived relationship satisfaction and happiness and increasing relationship instability, such as behaviours and expectations regarding divorce and separation.

Arthur Dobrin, who teaches applied ethics at Hofstra University, adds:

. . . stress and poverty go hand-in-hand. More important than unhealthy lifestyles and lack of access to good healthcare, chronic stress makes many susceptible to cardiovascular disease, high blood pressure, depression and diabetes. The impact upon the brain is seen with those suffering from post-traumatic stress disorder: the hippocampus part of their brains is atrophied. Chronic stress, which is experienced by many poor children, can be devastating since the hippocampus regulates emotional responses, is critical in the formation of memory and spatial awareness. (The impact of chronic stress is different than the reaction to acute stress, which may be beneficial by, for example, causing greater alertness and increased focus.) Poor children experience high levels of stress because, amongst other reasons, they live in violent neighborhoods, walk across many busy vehicular intersections, move residences twice as often and get evicted five times as often as the average American, are more likely to be bullied in school.

Psychologist John Grohol describes research suggesting poverty is often an antecedent, rather than consequence, of mental illness. 

. . . in a 2005 study, researcher Chris Hudson looked at the health records of 34,000 patients who have been hospitalized at least twice for mental illness over a period of 7 years.
“He looked at whether or not these patients had “drifted down” to less affluent ZIP codes following their first hospitalization,” according to the news account of the study.
He found that poverty — acting through economic stressors such as unemployment and lack of affordable housing — is more likely to precede mental illness . . .

If the research was not so clear on these facts, I might question whether my personal experiences, as well as the experiences I’ve had working in crisis advocacy, political work, and simply hanging out with friends and family, reflect larger social truths. But they do. Poverty makes us make terrible choices. People in love lose one another. People stay in abusive relationships, we feed our kids crappy food, find excuses not to get the lumps in our breasts and testicles examined, pollute the environment more, buy cheap instead of smart, trade transcendence and true self-actualization for reactionary and momentary preservation.

Whoever says inequality is good for society and poverty good for character development simply doesn’t know what the hell they are talking about.

Establishment politicians are trapped in a Kafkaesque tangle of strategic caution and fear of offending big donors. We periodically read of political candidates, often at the national level (where a comprehensive moral narrative makes sense) declaring war on income inequality, on the “Two Americas,” the necessity of “restoring the American dream.” These political conversations take place on a largely abstract level, with platitudes rather than policy prescriptions. Both major political parties perpetuate that approach; and although Democrats are historically more likely to favor government intervention to ameliorate poverty, as Noam Scheiber recently pointed out, even Hillary Clinton is afraid to mention tax increases or other robust governmental focus on solving the problem of poorness, even if tax increases might be a rational response to shrinking budgets and growing poverty and inequality—and even if, as is actually the case, a healthy majority of Americans support them.

Entire industries have sprung up and grown around poverty and desperation. LeeAnn Hall recently wrote about “lenders, banks, and collection agencies that are profiting from Americans’ debt. It’s time,” she says, “to stop blaming borrowers and instead hold the financial interests that created the crisis accountable.” I would add that we don’t need to wait for the mea culpa of those entities to begin projects that financially bypass them. They’ll be pissed off either way, if we do anything at all to threaten their interests. But ending the misery of over half the population of the country is more important than the feelings of payday lenders who, as Hall writes, “can get away with charging 300 percent interest on a short-term loan to a poor family just trying to fix their car so they can get to work” and siphoning money out of local economies.

If this magnitude of misery were inevitable or necessary, then the task of conscious activists and policymakers would be to help people live with it: accept it socially and individually, minimize the worst impacts of it. But if it is not necessary, then transcending it ought to be a real priority—of higher importance than keeping bankers and finance capitalists happy, more important than satisfying the Calvinist cravings of moral authorities who insist that humans must be miserable, more important than soothing the nerves of risk-averse elected officials.

And, in fact, this misery is not necessary. Scarcity of natural resources is a material reality; scarcity of money is a social construct.

Interest rates massively multiply the cost of all goods, services, rents, and other expenses. Because of the way privately-run financing layers interest charges on interest charges at every step in the chain of production and distribution, roughly one-third of everything we pay is interest. When constructing schools or other public structures, interest can nearly double the cost of such projects. “At the height of the financial bubble,” Ellen Brown writes in The Public Bank Solution, over 40 percent of U.S. corporate profits went to the financial industry—up from 7 percent in 1980.”

This isn’t your grandpa’s socialist diatribe. Brown continues:

The rich get progressively richer at the expense of the poor, not just because of “Wall Street greed” but because exponential growth is inherent in the mathematics of compound interest. The attempt to extract an exponentially growing interest burden from economies that at best grow linearly has been responsible for repeated banking crises. Booms are followed by busts, which are followed by austerity, belt-tightening, job loss, foreclosures, and homelessness. Busts follow as a mathematical certainty, because virtually all our circulating money supply is created as debt; and collectively, more money is always owed back on that debt than was created in the original loans.

There are many good discussions going on about alternative lifestyles, decreased consumption, more harmonious living, and even the possibility that individuals can strive for debt-free lives. All those discussions are important. But the structural, intrinsic nature of interest and debt in the very generation of our collective material endeavors renders a lot of those discussions futile. Even if we buy better food, we are paying farmers’ and grocers’ high interest rates. Even if we cut up our credit cards, we still live in a credit-based economy. And absent government-financed education (which happens in countries with strong public banking sectors), we will probably have to take out some loans to get our college degrees.

Fortunately, when it comes to how we make and lend money, we do have other options. As the Public Banking Institute expressed in 2014 in “The Detroit Statement,” a declaration signed by over sixty public figures, concerned citizens, activists and organizations:

The use of interest to extract maximum value from borrowers is far from the only way to bank. From the montes pietatus of medieval Franciscan monks, to the tally system used in England for at least five centuries, to the no-interest arrangements in versions of Islamic banking, to Quaker banks in colonial America, history is rich with examples of banking in the public interest. The Bank of North Dakota demonstrates how public banks can issue credit at low or even no-cost to cities and states; offer bridges to residential, agricultural, and public works financing; partner with responsible private entities to encourage conscious entrepreneurship; provide liquidity; and open and maintain safe bond accounts when bond financing is necessary . . . The failure of the big bank model provides us with opportunities for returning to our future of shared prosperity, equitable development and socially just stewardship of our commons.

Nonprofit banks, public banks, cooperative financial institutions, and public development banks all outperform their for-profit rivals. Countries with strong public banking sectors sailed through the 2008 economic crisis, relatively speaking, while countries controlled by too-big-to-fail private banks left millions of their citizens in heightened states of misery. The control of finance by big, powerful, aloof entities bleeds communities and stifles individual and collective development. Democratic control of finance—however imperfect those political entities are—offers a way out.  

The essence of Ellen Brown’s analysis of public versus private sector banking is that, whatever the conclusions regarding privatization in other spheres, big private sector banks fail at providing economic security to communities.

Neoliberal economic theory assures us that what is good for the big privately-owned banks is good for society--that private ownership produces better results in that sector as in all others; but the data tell a different story. Usury banking dominates in Western countries today, but 40 percent of banks globally are publicly owned . . . The advantages of public over private banking are not rocket science. A government that owns its own bank can keep the interest and reinvest it locally, resulting in potential public savings of 35 to 40 percent. Costs can be reduced across the board; taxes can be cut or services increased; and market stability can be created for governments, borrowers, and consumers. Banking and credit become public utilities, sustaining the economy rather than mining it for private gain.

Even the Wall Street Journal reluctantly conceded much of this last year when it analyzed how the Bank of North Dakota outperforms big private banks (they got the causal arrow backwards, but even in their muddled analysis, they reached an inevitable conclusion). It’s possible to change the game, to create institutions that deliver liquidity to communities, bail out individuals and families, and guarantee that we can weather hard times together. Those institutions already exist. We wouldn’t even be working from scratch. And that’s why I do what I do: Because economic insecurity is awful and ruins lives, and because feasible, game-changing structural alternatives exist.

Charity, relief, and redistributive programs help; they’re run and staffed by great people, many of whom are good friends of mine. But they don’t change the game, and they sometimes unwittingly reinforce the very hierarchies that produce the misery such organizations then struggle to address. We need to change the game itself, by changing the way communities produce and distribute value.

If you’ve made it this far, and if you’re with me, then you ought to really be with me. Join organizations like the Public Banking Institute, support organizations like Commonomics USA, that work to preserve and restore community ownership and cooperative economic arrangements, and above all, refuse to accept the assertion that the current privatized fiefdoms of value-creation reflect the best we can do or produce a just social order or healthy personal relationships. If you can’t join outright, offer us financial support. Many of us are working full-time to help realize these solutions.

We are not utopians. The policies we are pushing actually work—we’ve seen them work in the past, and in the here and now. They will make the vast majority of us healthier and happier and better equipped to face the inevitable difficulties and struggles that constitute life. That’s more important than keeping billionaires happy or calming risk-averse elected officials. It’s worth the effort. If you’re on the fence, make my struggle your struggle for a month or two, and see what happens. 

Become a Member New Economy Academy Find a Chapter


get updates