Sunday, June 24, 2018

Charles Goodhart and Michael Hudson — Some ways to introduce a modern debt Jubilee

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.
Some ways to introduce a modern debt Jubilee
Charles Goodhart, Emeritus Professor in the Financial Markets Group, London School of Economics, and Michael Hudson, President, The Institute for the Study of Long-Term Economic Trends; Distinguished Research Professor of Economics, University of Missouri


Ryan Harris said...

With a name like debt jubilee, who would not want to give it a whirl?

Noah Way said...

Debt forgiveness is never going to happen, as debt is the very foundation of capitalism.

Aside from that, this idea in a way perpetuates the idea it has to be paid for with a tax. Don't get me wrong, I like the idea of using tax to prevent the accumulation of wealth (and by association, political power).

Konrad said...

From the article:

“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 and provide 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. “

True, but today’s creditors no longer care about their host nations. They don’t care about anything except satisfying shareholders, and boosting profits via boosting debt bondage. Today, mankind’s greatest enemy is the banker.

NOAH WAY and I are uncomfortable with the idea that a “debt jubilee” could be paid for with taxes. I favor debt cancellation. Just pass laws that impose rent control, housing price control, bank regulation, and credit write-downs where needed. Compulsory debt jubilee.

We also need tuition control. Rather than create $1.3 trillion to pay off student loan debt, we just declare student loan debt as odious, and canceled. Bankers would scream, but too bad. Bankers created that $1.3 trillion debt out of thin air, and they are insured by the U.S. government. They have already made enough profit. Now student loan debt must be canceled for the sake of national security.

“However, during the course of subsequent civilizations, the wealthy creditors, as in Rome, became capable of preventing further centralized debt Jubilees, which led ultimately to a concentration of power among a few oligarchs and the erosion of the mass of landowning peasantry.”

Yes, the Roman Empire fell because it was gutted by its internal creditors. The USA will fall the same way.

“Nowadays the central government has ceased to be a creditor, and has usually become the largest debtor in the country.

As you can see, Michael Hudson never learned about MMT. The U.S. government is not a debtor, since it does not borrow its spending money.

“So our preference would be for a land tax based on pure land values, with a property tax as a fall-back.”

Huh? Who would pay this tax? Property taxes are already shooting up with the cost of housing. Banks do not pay property taxes on the properties they own. If Hudson wants to make banks pay, then we can talk, but Hudson doesn’t say that.

Hudson needs to rethink his proposals.

Kaivey said...

Once upon a time they needed their country's citizens to fight in their wars and manufacture their products, so they needed a workforce who had some education and were fit enough. But now the Western elite are intentional and can use foreign workforces to build their products and so they have no need to educate their workers anymore. Even with the majority of Americans living in poverty they would still rule the world. They will always get people to join the armed forces as people need to earn a living, and they can use mercenaries, so they don't need to worry about their own country anymore or whether their populations are healthy and well educated. The Spanish ate not likely to come attacking with their Armada.

Andrew Anderson said...

Of course it is government privileges for private credit creation that are a major driver of people into debt in the first place.

Andrew Anderson said...

I don't subscribe much to conspiracy plots since:

For our struggle is not against flesh and blood, but against the rulers, against the powers, against the world forces of this darkness, against the spiritual forces of wickedness in the heavenly places. Ephesians 6:12

In my experience, the tenacious defense of government privileges for the banks is otherwise inexplicable - especially in countries where the free market is supposed to reign.

Ralph Musgrave said...

I agree with Andrew: it's a bit of a puzzle why so many people, including those on the political left, are such staunch defenders of private banks' right to create or "print" the nation's money. On the other hand if we're going to make a major change like banning private banks' right to create money, we need to be very clear on exactly why we're doing it, and on exactly how we go about it, and there is nowhere near universal agreement on that yet.

Andrew Anderson said...

On the other hand if we're going to make a major change like banning private banks' right to create money, Ralph Musgrave

Let banks be 100% private with 100% voluntary depositors and their capacity to create deposits/liabilities will be very limited anyway since who, for example, would wish to keep their new bank loan in that bank if it were uninsured?

Andrew Anderson said...

And in my experience, there is no one who can legitimately argue against "100% private banks with 100% voluntary depositors" whereas there are legitimate arguments against an outright ban on private credit creation.

Konrad said...

@ Ralph Musgrave: I think that some things should never be privately owned, e.g. police and fire departments, utilities, prisons, armies, governments (at all levels) and banks.

Or, if we wish to have private ownership of these things, then we should always have a public option available. For example, for every privately owned bank, we have a publicly owned bank. People can choose which one to use.

Private ownership involves the profit motive, which must be moderated for the good of society, or else counterbalanced by a public option.

At present the lack of public banks (like the Bank of North Dakota) is destroying the USA.

Andrew Anderson said...

For example, for every privately owned bank, we have a publicly owned bank. Konrad

So which citizens are worthy of what is then, in essence, the public's credit but for private gain?

For that reason, except for the central bank*, all banks should be 100% private with 100% voluntary depositors.

*Where all citizens shall be allowed to use their Nation's fiat via inherently risk-free individual debit/checking accounts for no charge up to reasonable limits on account size and number of transactions per month.