The bigger problem with debt is not so much the inequality aspect but the deadweight anchor it places on societal and individual growth unless the returns on borrowed capital are quite a bit greater than the cost to borrow.
And then there's the whole "debt intensity" thing where it takes more and more borrowing to achieve a given level of general economic increase.
From VoxEU:
Charles Goodhart, Michael Hudson 11 June 2018
The increasing income and wealth inequalities within
countries is one of today’s great social concerns. This column describes
how the tendency towards increasing indebtedness in much earlier
societies was held in check by debt-cancellation Jubilees, and discusses
ways to deal with today’s debt overhang and accompanying wealth
inequalities. The funding of a modern Jubilee could come mostly, perhaps
entirely, from a land/or property tax.
One of today’s great social concerns is the increasing income and
wealth inequalities within countries, although rapid growth in China and
the rest of Asia has meant that global inequality has fallen (see
Milanovic 2016). An influential book by Walter Scheidel, The Great Leveler,
argues that inequality will rise inevitably unless one, or more, of the
horsemen of the Apocalypse occurs: warfare, violent revolution, lethal
pandemics, or state collapse (Scheidel 2017). We disagree.
In many of the earliest societies, the tendency towards increasing
indebtedness was held in check by debt-cancellation Jubilees which
occurred regularly in states such as Sumer, Babylonia, and Assyria. One
of us, Michael Hudson, has written a forthcoming book, entitled ”… and forgive them their debts”: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year, outlining how these debt Jubilees worked in practice (Hudson 2018).
The debt Jubilees contained three main elements.
- The first was to cancel agrarian debts owed by the citizenry; mercantile debts amongst businessmen being left in place.
- The second element was to liberate bond-servants, allowing them to
return freely to the debtor’s home. Royal debt Jubilees freed the lower
peasant classes from debt bondage, which originally was supposed to be
only temporary. But these acts did not liberate slaves (mainly foreign
captives).
- A third element was to return the land or crop rights that debtors
had pledged to creditors, enabling families to resume their self-support
on the land and to pay taxes, serve in the military and provide corvée
labour in public works.
Rulers were initially cancelling debts owed mainly to themselves
and to their officials. This was not a utopian act, but quite
practical, especially on ascending the throne. What the king lost in
immediate payment, he got back in encouraging a land holding peasantry,
who could pay future taxes andprovide the backbone of the
army. Moreover, rivals to the Crown, foreign enemies or internal
upstarts, could foment rebellion by threatening to cancel debts
themselves, if the new Monarch did not do so first. Particularly after a
bad harvest, the only way that the peasantry could repay their debts
would be by selling their land, and/or themselves as bond-servants, to
the wealthy merchants and landowners. That would change the structure
of the state from having a strong centre, supported by a wider stratum
of small peasant landowners, to one with a weak centre, with a group of
separate, subsidiary power centres and a growing sub-stratum of
serfs/slaves. History suggests that the second structure is far more
unstable than the first, more prone to rebellion, revolt, populism and
war.
Now, as then, powerful underlying forces seem to be conspiring to
hollow out the middle of our societies, benefiting the rich, skilled,
and powerful while the welfare state partially protects those at the
bottom. Society is becoming more polarised.
In these much earlier societies, the main creditors were the royal
families and their close supporters, including the religious order,
together with the wealthy nobles and landowners. These latter detested
being forced to participate in the debt Jubilees, but the royal
family was generally capable of doing so in these earlier
societies. However, during the course of subsequent civilisations, the
wealthy creditors, as in Rome, became capable of preventing further
centralised debt Jubilees, which led ultimately to a concentration of
power amongst a few oligarchs and the erosion of the mass of landowning
peasantry.
Nowadays the central government has ceased to be a creditor, and has
usually become the largest debtor in the country. A large proportion of
the wealth of each country is concentrated among few members of society
– the 1%. Moreover, much of the credit/debit debt relationship is no
longer direct, as it once was in the earliest societies, but is now
intermediated through financial institutions.
In most countries, a large (often the largest) proportion of the debt
is owed by the public sector, but held as an asset by inhabitants of
the same country. We owe that debt to ourselves. So, the cry has begun
to be heard, “Why do we not just cancel the debt to
ourselves?” Indeed, this superficially may now seem even easier since
so much of that public sector debt is now held, in concentrated form, in
the central bank, after several years of quantitative easing. Why not
just cancel both sides? Recall the suggestion in the early proposals of
the incoming Italian government about cancelling the Italian debt held
by the ECB.
The reason why this would not work is simple. The central bank is
itself part of the public sector, and the cancellation of debt to it
would immediately mean that it would be running an enormous net equity
short-fall....MUCH MORE
Previously from Professor Hudson:
Jan. 2018
And more generally:
June 2012
Screw You: What Central Bank's Do When They Enforce Price Stability
January 2013
Jubilation: Keynes and the Euthanasia of the Rentier
June 2012
"
The Debt Jubilee That Gave Birth to Modern Germany"
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.
