Have you heard of the term “plutonomy”? It means an economy that is fundamentally defined by extreme levels of wealth and income inequality, and which operates entirely in the interests of the extremely wealthy.

This is the protracted economic crisis gripping Anglo-American economies, including Australia’s. We have zombie economies (as John Quiggin would say) that are kept alive by debt — debt that is owned by and enriches the plutocrats. Our economies limp along sustained by consumption that financed through debt. The plutocrats not only extract value from wage-exploitation but extract future surplus value through interest payments.

In Australia, the vast majority of people are trapped paying for economic growth that already occurred.

I therefore ask the question: “what if we abolish household debts?”

For many years as a union official, I would regularly make the point that Australia’s economy, has relied on debt instead of wage growth to drive demand over the last 25 years. For example, in 2022, household debt grew around 7.3 percent vs household income which grew just 3.7 percent. This “debt-led growth” relies on ever-increasing private debt (credit cards, home loans, car loans, pay-day loans, Buy Now Pay Later scams), and pushed by the stress of stagnating income.

From a union perspective, the vast increase in personal, household debt coincided with a historic and structural decline in union membership, decline in industrial action and (therefore) a decline in wage growth. Debt became a form of social control and psychological distress, promoting conformity and suppressing dissent through a form of managed consumption.

In the mid 20th century, taking on a loan may have been a genuine choice. In the 21st century, especially since the Global Financial Crisis, taking on constant large and small-level debt is a necessity to survive in modern society. It is how people access mobile phones, education (via HECS), how they buy a car, pay for holidays or weekends away, and increasingly the BNPL debt is used to fund basic living costs like groceries and even rent!

The reason debt has grown to astronomical levels is simple: banks (who are the primary source of debt) make money by issuing loans.

Most people think that banks lend out deposits. However, thanks to the crypto-cranks and gold bugs on the right, there is far greater awareness now that banks create money digitally at the stroke of a keyboard. We are trained at school to think of banks as just neutral intermediaries — they just lend out savings and deposits of morally worthy savers. But that’s not how it really works.

In every country, banks are literally given a license to “print” money by the government. This generates immediate economic activity (“buy now”) that must be paid back over a long, burdensome period (“pay later”).

This debt dependency harms the entire national economy. How does it harm the economy? Because income from today is paid back to the banks (but actually to global financial markets) in the form of interest payments. This drains the economy of vitality — it means that today we have less income to invest in our health, our future prosperity (like study or starting a new business) or our living standards.

In short, almost everyone in Australia is trapped paying interest today for the past.

What if we cancelled the household debt?

Back during the Global Financial Crisis, the big US and European banks were “bailed out”, effectively their debts were cancelled because they were too big to fail. Similarly, during the Covid pandemic, billions in business loans in the US were issued by the government and then cancelled.

The financial and corporate bailouts were justified by governments at that time because those sectors were “too big to fail”, even though (in the case of the Global Financial Crisis), the banks and lenders actually caused the crisis.

Household debt cancellation operates on a similar principle — that households, real people, are too big to fail.

What it would it look like?

• Cancelling debt on the household home
• Cancelling HECS debt
• Cancelling consumer debt like credit cards

First, it would involve cancelling debt for the family home. For example, offering zero interest or very low interest loans for peoples’ primary residence mortgage would deleverage housing. This would have several benefits. It would give significant security to millions of struggling families, and turn the home into a source of savings rather than a highly leveraged financialised asset that drained income away to a bank/global financier.

De-financialising housing would also make housing more affordable over the long-term, through reducing the incentives for banks to offer up ever larger mortgages and debt to property investors. It would also restore the idea of houses having “use value” (as a shelter and home) rather than an “exchange value” (as a tradable financialised asset) — restoring the idea of housing as a social good instead of a source of profits.

Second, we should cancel all HECS. Australia’s HECS is far better than the US student loans and the 20 percent reduction by the Labor government is good. However, the dramatic increase in the cost of education and therefore HECS, and the subsequent debt acts as a major barrier to people seeking education. Indeed, HECS just gives the government a future claim on wages, in addition to taxes, and reinforces existing social/economic hierarchies (the wealthy rarely have HECS debts).

The benefits of HECS as a policy have passed and the idea of financialising a public good (education) should be recognised as no longer serving any beneficial purpose. HECS should be written off.

Third, high-cost consumer debts (like credit card balances and payday loans) should be refinanced to remove harmful rent-seeking profits. These types of debts are often issued by very predatory lenders. Furthermore, the interest rates for credit cards has almost no relationship to the cost of finance to the bank or the amount of risk the bank is taking on to justify the interest rates. It’s mostly just price-gouging and exploitation.

Of course, opponents to this idea will have lots of arguments.

They might say that cancelling household debt creates a “moral hazard”.

The banks that caused the Global Financial Crisis got a trillion-dollar bailout because they were “too big to fail”. Everyday people should have the same. Households are too big to fail. If we underwrite banks and their profits, we can underwrite people’s economic security.

In Australia, the Commonwealth government (which means, all of us) guarantee the profit-driven loans issued by the major banks — this means we are underwriting around $3 trillion in debt issued by just the Big Four Banks.

We also need to push back on the term “moral hazard”, which is mostly a neoliberal economic term used to push blame from systemic economic failures onto individuals.

We must shift the moral economy of debt to one where credit and debt is primarily used as a tool for public good rather than just profits for ultra-wealthy investors. Underwriting and guaranteeing loans to for-profit banks is acceptable, so why not for everyday people? Currently, the debt holders in Australia, and the bond holders globally, effectively hold our economy hostage.

Household debt cancellation is possible and increasingly probably necessary. If we are serious about challenging the plutonomy that is underpinned by debt dependence, we need political will to demand debt cancellation.