Since 2008, governments across mature capitalist economies have come to rely heavily on debt issuance. For example, governments in the US, Japan, the UK, France, and Italy are now structurally dependent on deficit spending, low interest rates and debt rollover to maintain political-economic stability. Persistent deficits, even during tepid growth, relative paralysis regarding tax raising/spending cuts and dependence on financial markets to buy government debt characterise this now permanent crisis.
Even when political elites prefer austerity, they are constrained by admittedly incoherent working-class activity at the polling booth, e.g., the rise of Reform UK being a recent exemplary case of false consciousness. Yet the state cannot ignore diktats from financial capital in the bond markets either. Indeed, the bond markets are currently wreaking havoc on Japan’s debt dependency (“Bond vigilantes are sending warnings globally”, Market Watch, May 21, 2025). Thus, states face a pull on both sides.
The Marxist James O’Connor once called this the “fiscal crisis of the state”. At the core of the crisis is a contradiction. States must legitimise themselves at some fundamental level with the working class via the “social wage” (or, if they cannot do that, at least ensure the conditions of sufficient accumulation in the capitalist sector to “lift all boats”). Yet they must also enable accumulation by maintaining a business-friendly environment, providing low taxes on capital and protecting profit.
The antagonistic nature of the two demands can sometimes be muted, sometimes surface. The state cannot indefinitely increase public spending without taxing capital, undermining accumulation, or borrowing, which eventually runs into financial limits. Shifting the burden onto the working class becomes unsustainable because of under-consumption problems and (often confused) political resistance.
Turning to debt certainly defers the immediate need for redistribution via tax hikes and temporarily preserves accumulation and legitimation. But in doing so, it sets up more profound contradictions, for example, debt servicing costs, inflation, financial instability, and legitimacy erosion.
A recent 2025 Financial Times film, Why Governments are Addicted to Debt, frames fiscal crises as a policy problem: politicians are too short-term, the populace resists budgetary discipline, and central banks have enabled borrowing with low rates.
Marxists say differently. It is not just bad governance; it is an endemic feature of the internal contradictions of capitalist societies trying to square the circle between accumulation and legitimation. Either states are forced into austerity and face political instability in addressing debt addiction, or the financial system becomes alarmed at the fear of unsustainable state debt and turns the screw on the profligate political class and populace.
Modern Monetary Theory (MMT) maintains that currency-issuing governments cannot run out of money because they can always print more. The fundamental constraint is inflation. Governments should not worry about deficits; they should spend to ensure full employment and tax to manage inflation.
While communists respect MMT for demystifying government budgets, one should remember the economy is not just technical money management: it is ruled by class struggle. Capitalists resist high taxation, real full employment threatens capital’s control over workers, and financial elites politically constrain how states can use monetary tools.
Undermining profitability triggers capital flight, inflationary spirals, investment strikes and political revolt by the capitalist class.
Debt-dependence is not a technocratic malfunction but symptomatic of the contradictions of the mode of production. The fiscal crisis is a class crisis, revealing the contradiction of reconciling capital’s demand for accumulation with labour’s need for social reproduction. As states twist themselves into knots to placate both bond markets and disillusioned electorates, the limits of bourgeois governance are ever more clear.
