Capital’s Card Tricks: student debt relief amid rising interest rates & inflation

The Democrats have spent the majority of the past two years kissing the feet of the party’s rightmost members, fossil fuel lackey Joe Manchin and Arizona-based narcissist Kyrsten Sinema, and trying to hide Joe Biden from TV cameras. After a total lack of response to the catastrophic overturning of Roe v. Wade, and with their poll numbers in the mud, it seemed like they were a party adrift, no longer driven even by the paper-thin motivation to win elections. In the run up to the midterms, however, the Democrats have shown that they still have a few tricks up their sleeve in the form of (some) student debt relief—that is, if the right-wing doesn’t block it through its allies in the judiciary.

On the heels of the Inflation Reduction Act, the Biden administration announced a student debt relief program forgiving $10,000 for student debt holders making less than $125,000 per year, and $20,000 for Pell grant recipients. Following this announcement, Biden and his PR operation have appeared rejuvenated. The White House Twitter account produced a series of viral tweets exposing critics of the student loan debt forgiveness program for unabashedly accepting capitalist debt forgiveness on PPP loans they accepted during the Covid bailouts.

Biden himself has even been sharper and more energetic, angrily pointing out the hypocrisy of Republican outrage over debt forgiveness in the face of their support for tax cuts for the rich. Even his own forgetfulness played into his hands as he took a clever dig at Republican congresswoman and conspiracy nut Marjory Taylor Green, referring to her as “what’s her name… that woman who believes in the… anyways.”

What does this apparent reversal mean for the trajectory of US politics and the Democratic party? Mainstream commentators are eager to paint this measure as a sign of the party’s leftward drift. Some on the left have been eager to accept this framing, arguing that the electoral inroads of Democratic Socialists and self-described progressives on the Democratic ballot line have led Biden to make this concession. They are correct insofar as the measure is essentially a way to micro-target a government program toward the Democratic party base, people with college degrees who are not wealthy. But this maneuver is obviously not a victory for socialists. As the old addage goes, “while one hand giveth, the other taketh away.”

While the debt forgiveness is undeniably a boon to those of us suffering the most from student debt, from the point of view of the class as a whole this represents little more than a rearrangement of the burdens placed upon us. Even as the state takes a partial loss on the loans, it is preparing to squeeze workers through another arm of the credit system. The federal reserve has begun raising interest rates, from a bottomed out .08% up to 3.2% as of September, with promises of more to come, ostensibly in an effort to curb inflation. Of course, there is no clear evidence that inflation is being driven by the money supply or by outsized demand and would thereby be affected by continued interest rate hikes.

A much more plausible explanation is that inflation is being driven by a supply chain crisis due to covid, war, and crop failure. The real reason to raise interest rates is to restore capitalist profitability by way of recouping a higher rate of return on financial capital, driving unemployment up and wages down, and reducing competition by squeezing out small capitalists.

Apologists for Biden will point out that the federal reserve is politically independent and that there is “nothing he can do '' about interest rates. In a technical legal sense, this is correct. But the legal separation between the government and the federal reserve policy elides the deeper political reality. In actuality, each mutually conditions the policies of the other. As Allan Blinder, former economic advisor to Bill Clinton, recounted about that administration: “[Clinton] may have had reassuring discussions with [Federal Reserve Chairman] Greenspan. [Greenspan] may or may not have said, ‘Do this thing to the budget deficit [reduce it], and I’ll cooperate.” Evidently, Clinton cooperated: “[Clinton] was smart enough to take the advice he was getting from all of us… that a President who picks a fight with the Fed is likely to lose.”

This account is a straightforward portrayal of the liberal conventional wisdom about the independence of the central bank—but it is all the more revealing for that reason. The official democratic state is given leeway to do what it wants, within certain circumscribed limits and with the knowledge that the unelected technocrats at the federal reserve will be pulling the strings in the background.

The house wins

The relationship appears adversarial on its face, but is in fact a delicate dance which allows both sides to achieve their ends. Democrats like Clinton, or especially Biden—who is attempting to cut a more populist image—are able to pass real reforms which otherwise might not be tolerated by the capitalist class because they ultimately know the Fed has their back if the labor market gets too tight and wages get too high. This dynamic does not require any conspiracy. Blinder notes that Clinton, probably like any president who endures rising interest rates, would become privately angry at the federal reserve. But as long as the ruling party keeps its mouth shut about it (with the not-so-subtle threat of retaliatory rate increases looming in the background), the whole process functions.

Biden is allowed to engage in this kind of (highly circumscribed and partial) economic redistribution, and the capitalists sleep soundly because they know that pretty soon rate hikes will undercut the tight labor market which has given such a boost to union organizing and wages. The fact that rates have so far stayed well below the 20% mark hit at the end of the Carter administration shows that Biden and the Democrats have up until now managed to retain the support of the ruling class as the more competent alternative to Trump and the Republicans.

As long as the working class lacks its own party, political disputes within the state will remain disputes among capitalists and their servants over how to manage the system. Some workers will sometimes benefit marginally from these disputes, as we can witness with Biden’s student debt forgiveness, but the class as whole will continue to get squeezed. A real party of the working class would have already canceled student debt outright, and would be mobilizing by whatever means it had at its disposal to bring the federal reserve (and the rest of the economy) under democratic control. Instead, we get crumbs from the Democrats and coverage of interest rate policy is almost entirely relegated to the financial press consumed by the capitalists themselves.

Some Democratic Socialists, like Alexandria Ocasio-Cortez, have observed that the debt relief does not go far enough. At the same time, other Democrats have opposed the plan from the right. Of course, these right-wing dissenters will not be punished by the party in any way. They are the party of everyone and no one, and always have it every which way: Have your pitiful debt relief, we’ll squeeze you through the fed. You can forget about free tuition! Be sure to vote for us in the midterms to stop the fascists – and by the way we’re tough on crime! The Democrats and their capitalist masters are playing Three-card Monte with the accumulated wealth of an entire society. Comrades, don’t fall for it again!

Zack Frailey Escobar is a communist dock worker and sociology student living in San Diego. You can find more of his work at redhorizon.home.blog.