Author Richard Vague argues for a US debt jubilee

Human societies have grappled with versions of the same issues for at least as long as written records exist, and probably longer than that. Aside from hunger and predators, no problem has been a feature of ordinary human life longer than the personal debts that families accrued in ancient times simply to live and eat between harvests. The old solution was a periodic “debt jubilee” declared by the king to clear all personal debts.

The debts accumulated by individual families cumulatively created major political and social problems in these ancient societies. To begin with, centuries ago, lenders wanted collateral for loans, which could be a part of the next harvest or the possibility of enslaving the debtor or his children if the debt was not paid. For the rulers of these societies, the growing number of debt slaves often meant a dwindling number of potential soldiers and dealing with the constant friction caused by deep popular resentment towards the people who held all the loans.

Richard Wave, author of The case of a debt jubilee, argues that the ancient custom remains relevant today, as medical debt and student loans hamper millions of American families. Vague reasons that a large debt forgiveness would energize the US economy and most likely eliminate some of the toxicity of our politics, which he sees as increasingly toxic since the Great Recession.

We asked Richard Vague about the similarities and differences between debts in ancient times and today, how a debt jubilee might work in practice, and what the wider benefits of debt cancellation might be.

Daily Grit: In Debt: the first 5,000 yearsthe regretted and lamented David Graber explored the ancient connection between debt and slavery, assuming that a person’s body was the final collateral. Debt jubilees were, if I have that right, seen as the means to avert the social collapse caused by the fact that most of society was enslaved to a few. How do you see our situation now? How deep are the problems caused by massive debt?

Richard Wave: Of course, nothing can be compared to the situations of ancient societies where a borrower had to give either his child or himself as collateral.

Yet American households carry the highest level of debt in history, and it has the practical and insidious effect of weighing down tens of millions of Americans to the point that they cannot make the investments needed to improve their lives or advance the economy…whether it’s for something like college education for their children, buying a home or renovations for their family, or expenses like a vacation. He left a lot of lives that are essentially ongoing battles with debt collectors.

The two decades of fastest growth since World War II were the 1950s and 1960s, and we calculate that with the current debt burden, household “debt service ratios” are 30 to 40 % higher today than for households then – and rising.

This high household debt was the reason the economy was stuck in such a slow growth mode in the years following the Great Financial Crisis, and is the reason it will be stuck there again after the benefits. Pandemic relief programs — which have mostly ended up in the hands of the wealthy anyway — are entirely exhausted.

Daily Grit: The phrase “debt jubilee” isn’t in common usage, but isn’t that essentially what the Biden administration is debating internally over student loans?

Richard Wave: Yes, that’s an appropriate term for what the Biden administration is debating. Jubilee was the term used in ancient Israel that encompassed this type of debt forgiveness. A more universal term might be debt amnesty, debt cancellation, or debt forgiveness. The term jubilee is beginning to take on the broader meaning of any type of debt relief, including partial debt cancellation.

Daily Grit: One argument against canceling student loans is that canceling current loans will not prevent future students from borrowing to pay for their education. Is this a sufficient argument against the cancellation of their loans?

Richard Wave: We have to divide the problem into two parts. First, we need to assess how to make college more accessible and affordable for students applying today, and second, we need to determine what to do for those who have already incurred debt and are struggling to pay it. pay.

These two problems are crucial and must be solved. A proposal that solves one problem but not the other does not invalidate the other idea or ambition. It just means there’s more work to do.

Given the rising costs of college and our growing need for more education to maintain our competitive edge in the world, I believe the best way to ease future education borrowing is to provide more scholarships and other forms of direct support to students applying for college.

Daily Grit: Student loans cannot be canceled by bankruptcy, but astronomical medical bills are the leading cause of personal bankruptcy. Even if all medical debts were forgiven, wouldn’t they recur when people got sick or injured?

Richard Wave: The idea that debt will recur does not invalidate the need to address the debt burden we carry today. In fact, the old debt jubilee practices assumed that the debt would recur. But that fact only further motivated these civilizations to offer what we might call a fresh start or a “clean slate.”

As I have shown elsewhere, debt is always growing faster than income in every society – perpetually. This only increases the importance of finding ways to ease debt pressure along the way. Debt is perpetually growing in every economy because it takes debt to grow. Since the debt in the system is always increasing, debt relief needs to be built into the system. It must become a structural element. It’s like an engine that would overheat unless an exhaust system was part of the design.

Notably, most personal health-related bankruptcies stem from unusual or unforeseen expenses, such as a surprise medical bill or catastrophic illness. A better health care system in the United States could solve this problem at its core and be good news for households, hospitals and the economy as a whole. I advocated taking a step in that direction by starting to offer Medicare to people 55 and older.

Daily Grit: You seem much more alarmed by the size and implications of personal debt in the United States than by the government borrowing that constantly dominates the headlines. Why? How are these forms of debt different?

Richard Wave: Private sector debt, including household debt, is much larger than public debt and has a much more direct, immediate and substantial impact on economic trends and outcomes.

In addition, the governments of major developed countries have virtually unlimited capacity to carry and repay debt. To use the colloquial explanation, they can “print money”. Households and businesses cannot.

Governments that are struggling to repay their debt are almost always small countries that have large trade deficits and have borrowed in a foreign currency. My advice to those running small countries is not to fall into this trap. It almost never goes well.

Daily Grit: Banks and Wall Street investors were bailed out after the crash of 2008, but millions of American families were evicted. Now, in this very tight real estate market, we see Wall Street money actively competing with families for homes. What connection, if any, do you see between personal debt, housing insecurity, financial insecurity and the toxicity of our politics?

Richard Wave: Ensuring that the average family has reasonable and affordable access to basic needs, such as housing and health care, is at the absolute heart of a thriving society.

The housing situation today is very different from the years following the crash of 2008. Then there was an oversupply of homes – the stock of unsold homes reached 2.6 million. The problem was that many houses sold at that time were “under water”, the mortgage was much higher than the value of the house and millions of people could no longer pay their mortgage.

Today, the problem is almost the opposite. Housing inventory has been depleted by as many as 1.3 million homes, and this scarcity has driven home prices to levels that many Americans can no longer afford. The Wall Street buys you refer to have only compounded the problem. This puts the United States in a position it has never been in before: an acute housing shortage and a heavily over-indebted population.

It’s creating a lot of stress and dissatisfaction across the country, exacerbating the discontent we’re seeing right now and fueling the very toxicity you mention.

Rising rates and slowing GDP growth that will come as pandemic relief funds run out should alleviate the problem, but resolving it fully will take years and will need to encompass more than just housing assistance.

Daily Grit: In biblical times the new king declared a debt jubilee, but I have real doubts that government at any level can cancel private debts. How do you see debt forgiveness working?

Richard Wave: You are right. However, there are two things that can be harnessed to bring about the benefits of Jubilee. One is actually the government, which has an almost unlimited capacity to take on more debt and is able to provide direct relief in areas such as student debt and health care debt. A second method is to spread the problem over a long period of years, essentially using the advantage of time. Both strategies have been used successfully in the past.

We could have used this “benefit of time” for the millions of borrowers whose mortgages were underwater after the 2008 crisis. Lenders were reluctant to write down these mortgages and reduce borrowers’ principal and interest proportionately. , as it would have forced them to suffer heavy losses the year they did. If we had given lenders a one-time waiver to spread these losses over 30 years, but only if they reduced borrowers’ payment and principal proportionately, it could have made a significant difference in the lives of millions of people.

Daily Grit: Now the open question. What do you want to tell us about that I did not raise with my questions?

Richard Wave: You have covered everything. I am a big fan of Grit Daily, thank you for this opportunity.