Why Neoliberals Pretend Private Debt Doesn’t Matter and Public “Debt” Does

The neoliberal policy approach in the decades leading up to the crisis basically amounted to enticing or pushing people into increasing levels of private debt. With private debt burdens mounting in relation to real GDP, we were told that consenting adults knew what they were doing. Then the crisis hit. Since then, as the private sector attempted to deleverage and get its unsustainable debt levels under control, we were told that the government’s deficits, which increased as a matter of accounting, were unsustainable. The outcome, depending on which doomsayer you listened to, would supposedly be hyperinflation, escalating interest rates, sovereign default, a crippling debt burden on future generations or some heady combination of any or all of these calamities. For governments that issue their own flexible exchange-rate nonconvertible currencies, these claims are nonsense. Even in the Eurozone the sovereign-debt crisis is a manufactured one that can be alleviated indefinitely by the ECB. So what explains the neoliberal preference for private debt and aversion to government deficits? The class-interested motivations seem crystal clear.

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