To Fight Debt by Forgiving Debt

August 20, 2013 | | Metro Times |

We recently finished a new book by Robert Kuttner called Debtors’ Prison: The Politics of Austerity Versus Possibility. It was quite an eye-opener. Austerity, of course, is a dirty word around the left end of the political spectrum, one we’re used to arguing against, as it tends to hurt the most vulnerable among us. But Kuttner’s book is really good at articulating many other reasons why austerity is punitive, and why other possibilities make much more sense.

As he points out early, one main problem is that your average layman confuses and conflates many different kinds of debt. Perhaps it comes from our everyday experience. When you lend your neighbor $100, you expect to be paid back. If they don’t pay you back, you’re going to be irritated if you see them coming home with full grocery bags and a shiny new bicycle for their child. Naturally, you don’t expect them to starve their children or sell their car, but unpaid debts have a quiet moral component in our daily lives.

But as Kuttner points out, a lot of our conventional, day-to-day ideas about debt and austerity don’t really apply to high finance. You see, the way big banks lend money is a far cry from the way you might lend your neighbor money. Banks are driven to lend money, because it’s how they make money. They can lend money and then sell the debt to others. They are insured against losses via the federal government. Financial institutions are also, unless constrained by law, driven by spasms of speculation, eager to invest in the hottest new trends, bidding up prices until the inevitable crash comes. Crashes can also be lucrative, as financial institutions can wreak havoc in bond markets, driving entire governments further and further into the red. Clearly, international finance is something completely different from you lending your neighbor a hundo.

Despite this, most people cling to mundane ideas about debt and austerity. We blame borrowers, not overzealous creditors or irresponsible financial institutions, for their condition. In doing so, arguments about austerity ring true, and discussions of debt forgiveness seem foolish and simple-minded.