When politicians, enthusiastic to pose as the people's friends, bring forward bills providing for the distribution of property, they intend that the existing owners shall be driven from their homes. Or they propose to excuse borrowers from paying back their debts.
Men with those views undermine the very foundations on which our commonwealth depends. In the first place, they are shattering the harmony between one element in the State and another, a relationship which cannot possibly survive if debtors are excused from paying their creditor back the sums of money he is entitled to. Furthermore, all politicians who harbour such intentions are aiming a fatal blow at the whole principle of justice; for once rights of property are infringed, this principle is totally undermined.
So what is the prescription?
The real answer to the problem is that we must make absolutely certain that private debts do not ever reach proportions which will constitute a national peril. There are various ways of ensuring this. But just to take the money away from the rich creditors and give the debtors something that does not belong to them is no solution at all. For the firmest possible guarantee of a country's security is sound credit...
So the men in charge of our national interests will do well to steer clear of the kind of liberality which involves robbing one man to give to another."
I extremely enjoy the analogy Dembroff draws between the right to own and government's responsibility to provide as it pertains to nne of the few rights of ownership explicitly outlined in the constitution:
For example, we have the right to bear arms...does that mean the government should buy us all handguns?
Now there is an interesting idea for government stimulus!
Back to Cicero's warning against out of control private debts. Below is a chart that was discussed on NPR this morning, showing the percentage of household debt to GDP. It hit 100% last year? The last time that happened? 1929.
Whenever I get around to it, I will outline the Austrian economic theory of business cycles, which in its simplest forms blames booms and busts on government manipulation of the interest rate and money supply, both of which distort the price levels and exacerbate the effects of credit. Suffice it to say that if the Austrian theory is correct, no amount of stimulus will help our economy until individuals get their balance sheets in order.
5 comments:
The best answer to the economic crisis I've heard yet is something a bit old-school. Some might even call it old-testament: How about a year of jubilee? Forgive all debts. Returned all property to its original owner. Hit the reset button. Those who have been prudent suffer no loss, those who have been less prudent are redeemed and restored to good graces. Sure it may sound unfair, and honestly, it is unfair. But this economic crisis has progress way beyond the point of arguing over what's fair.
Its egalitarian and radical, and it just might work...
Return property to who? What about credit card debts? How do you return college tuition? Does real estate go to the developers who already have too much inventory? The re-sales to people who may not be able to float two mortgages, or to banks who can't sell the ones they already have?
I get your point, and I had thought about something similar, but I think the result would be even more chaos.
The best thing version of a jubilee plan might be to turn all currently outstanding debt to 0% interest and penalty/fee free, and at the same time raise interest rates on new loans dramatically. The banks lose interest (profit) on old loans in return for the bailouts they are receiving, and at the same time high interest rates moving forward allow them to make money while ending the easy money that incentivizes people to go further into debt.
The year of jubilee would require no oversight. Creditors and debtors would be free to structure their jubilee however they like - if some want to eliminate interest, fine. If others want to return leveraged goods, fine. If others had rather forgive outstanding balances, fine.
There will be great losses on all sides, no doubt, but that will happen anyway through foreclosures and bankruptcies. This just gets us to the end point faster.
How about this - the bank forgives my student loans, and I forgive the 700B check I just wrote to the banks and we call it even. I just want to be through with all of this - that means I want to stop worrying about what is past, and start working on tomorrow. I perceive our collective hindsight as being a significant barrier to progress.
I'll admit that my suggestion is radical and seems impossible, but the past decade of radical debt and impossible assumptions has proven that we're not above pulling the old "this is so crazy it just might work" trick. Was it over when the Germans bombed Pearl Harbor?
Well, we can not get away from reaping what we sow. On a macro level, our economy for the last several years has boomed primarily through debt thanks to superficially low interest rates and easy credit. Throw in several pro-lending policies and quasi-government institutions backing all the debt, and it was like fuel to a fire.
As much as Krugman refuses to admit it, if you go on a serious booze bender, you are going to wake up with one heck of a hangover. And more booze won't help, it will at best delay the inevitable, and more likely make things worse.
That is my position on a political/macroeconomic level. On a personal level, would I better off working out revised loan terms as a debtor or lender? Sure. But as far as any government-mandated policy to this effect, a fundamental view of mine is that for there are always unknown repercussions from government interaction that may create problems as big or bigger than the initial problem the policy set out to create, and any jubilee policy would have untold repercussions.
The deal is actions have consequences, and even if we enjoy the actions, we cannot escape the inevitable consequence, try as we might. Politically, economically, physically, spiritually.
To clarify, I mean spiritual reaping of what is sown only absent of grace.
And we already have a jubilee system in place - it's called bankruptcy.
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