Sunday, January 21, 2018

Could/Should Jubilee Debt Cancellations be Reintroduced Today?

There was a bit of a hubbub about the idea in the early years of this decade, some links after the jump.
From Michael Hudson's blog:
By M. Hudson (University of Missouri) and C. Goodhart (LSE)
As published by the Center for Economic Policy Research.

In this paper we recall the history of Jubilee debt cancellations, emphasizing what their social purpose was at that time. We note that it would not be possible to copy that procedure exactly nowadays, primarily because most debt/credit relationships are intermediated via financial institutions, such as banks, insurance companies, etc., rather than by governments or wealthy families directly. But we argue that the underlying social purpose of such Jubilees – to keep debt within the reasonable ability to be paid without social and economic polarisation – could be recreated via alternative mechanisms, and we discuss the politico-economic arguments for, and against, doing so.
Keywords: Inequality; Debt-Canceling Jubilees; Babylonian and Byzantine Empires; Equity Participation; Student Loans; Land Tax.
JEL categories: E60, E61, E62, E65, H10, H23, H80, N30, N35, P43, Q15, R52, Z13.

The idea of annulling debts nowadays seems so unthinkable that most economists and many theologians doubt whether the Jubilee Year could have been applied in practice, and indeed on a regular basis. A widespread impression is that the Mosaic debt jubilee was a utopian ideal. However, Assyriologists have traced it to a long tradition of Near Eastern proclamations. That tradition is documented as soon as written inscriptions have been found – in Sumer, starting in the mid-third millennium BC.

Instead of causing economic crises, these debt jubilees preserved stability in nearly all Near Eastern societies. Economic polarization, bondage and collapse occurred when such clean slates stopped being proclaimed.

(2) What were Debt Jubilees?
Debt jubilees occurred on a regular basis in the ancient Near East from 2500 BC in Sumer to 1600 BC in Babylonia and its neighbors, and then in Assyria in the first millennium BC. It was normal for new rulers to proclaim these edicts upon taking the throne, in the aftermath of war, or upon the building or renovating a temple. Judaism took the practice out of the hands of kings and placed it at the center of Mosaic Law.[1]

By Babylonian times these debt amnesties contained the three elements that Judaism later adopted in its Jubilee Year of Leviticus 25. The first element was to cancel agrarian debts owed by the citizenry at large. (Mercantile debts among businessmen were left in place.)

A second element of these debt amnesties was to liberate bondservants – the debtor’s wife, daughters or sons who had been pledged to creditors. They were allowed to return freely to the debtor’s home. (Slave girls that had been pledged for debt also were returned to the debtors’ households.) Royal debt jubilees thus freed society from debt bondage, but did not liberate slaves.

A third element of these debt jubilees (subsequently adopted into Mosaic law) was to return the land or crop rights that debtors had pledged to creditors. This enabled families to resume their self-support on the land and pay taxes, serve in the military, and provide corvée labor on public works.
Commercial “silver” debts among traders and other entrepreneurs were not subject to these debt jubilees. Rulers recognized that productive business loans provide resources for the borrower to pay back with interest, in contrast to consumer debt. This was the contrast that medieval Schoolmen later would draw between interest and usury.

Most non-business debts were owed to the palace or its temples for taxes, rents and fees, along with beer to the public ale houses and other payments to these institutions. Rulers initially were cancelling debts owed mainly to themselves and their officials. This was not a utopian act, but was quite practical from the vantage point of restoring economic and military stability. Recognizing that a backlog of debts had accrued that could not be paid out of current production, rulers gave priority to preserving an economy in which citizens could provide for their basic needs on their own land while paying taxes, performing their corvée labor duties and serving in the army.

Most personal debts were not the result of actual loans, but were accruals of unpaid agrarian fees, taxes and kindred obligations to royal collectors or temple officials. Rulers were aware that these debts tended to build up beyond the system’s ability to pay. That is why they cancelled “barley” debts in times of crop failure, and typically in the aftermath of war. Even in the normal course of economic life, social balance required writing off debt arrears to the palace, temples or other creditors so as to maintain a free population of families able to provide for their own basic needs....MORE
June 2012 
Screw You: What Central Bank's Do When They Enforce Price Stability
I proceed on the assumption that our readers are not coupon clippers.
This is getting close to sedition against the rentier class and borders on an an open call for Jubilee.
Aux barricades!
January 2013 
Jubilation: Keynes and the Euthanasia of the Rentier
June 2012
"The Debt Jubilee That Gave Birth to Modern Germany"  
From The Economist's Buttonwood blog:...
April 2013 
Let's Just Proclaim Jubilee: "Quantitative easing should be used to write off government debt"
August 2013 
Jubilee! "Just set fire to Japan's quadrillion debt"
October 2012 
The Logical Endpoint of Quantitative Easing: Jubilee
...HT: Abnormal Returns
AR says see also the FT's Gavyn Davies from Oct. 14.

As  the man said, the idea is gaining traction though it is hardly new. Earlier this summer FT Alphaville linked to some serious commentary in "Debt jubilee for one and all — love, the Queen" (Roach, Buiter, Keen et al).

If you wanted to square the books, short of outright debt forgiveness you could resurrect  the "Trillion Dollar Coin" plan that was making the rounds during the 2011 debt ceiling standoff.
(oddly enough the ceiling doesn't apply to coins, go figure)

Rather than the then au courant idea of depositing one or two of these beauties with the Fed and borrowing against them, the Treasury could sell them outright  in exchange for T-bonds, notes, bills, lint in Ben's pockets etc.

The balance sheet would look something like:

      Fed                                                                             Treasury
3 magic beans                                                  World's greatest seigniorage score

And everyone lives happily ever after.