Sunday, February 01, 2009


Wikipedia on the biblical rule of Jubilee:
These Babylonian kings... occasionally issued decrees for the cancellation of debts and/or the return of the people to the lands they had sold. Such "clean slate" decrees were intended to redress the tendency of debtors, in ancient societies, to become hopelessly in debt to their creditors, thus accumulating most of the arable land into the control of a wealthy few. The decrees were issued sporadically. Economist Michael Hudson has maintained that the Biblical legislation of the Jubilee and Sabbatical years addressed the same problems encountered by these Babylonian kings, but the Biblical formulation of the laws presented a significant advance in justice and the rights of the people...this legislation was also eminently practical, in contradiction to many Biblical interpreters who are not economists and who have labeled it "utopian."
My naive reaction to the financial mess was to say, in my stupid way*, that the real economy (the part that actually produces and consumes useful stuff) should be at least capable of being unaffected. Banks may close, hedge funds may evaporate, but farms and factories and their inputs and outputs don't disappear overnight. Can't the real economy of valuable production and consumption continue while Wall Street shrivels into its own black hole of debt?

But of course the mystery of depression is that a disease of the fake economy causes enormous difficulty and hardship in the real economy. The two are inextricably linked, or so it seems. But let's imagine that they could be separated. If the problem is a collapsing network of debt, why not just ignore all that and get on with the business of living? What if we declare Jubilee and make all that ridiculous network of bad debt null and void?

Well, of course, you couldn't actually do that! Civilization would crumble. Even I'm not stupid enough to think that is practical. Except some people who might actually know something about economics are thinking along the same lines:
In the past, when excessive debt burdens were accumulated by government, they tended to do one of two things: either they defaulted-”this is the Argentine solution-where you say, "œAh, I'm sorry, I'm afraid we'™re not going to be able to meet the interest payments this month, and never again will we make the interest payments."

The other scenario is inflation, where the real debt burden is eroded because the money that it's denominated in loses value.

I don'™t think we'™re really going to be out of the woods here until something of that sort happens to the huge debt burdens of the U.S. economy. Either these debts will have to be fundamentally written off in some way, or inflation will have to reduce the real burden.
Inflating our way out of the problem seems like the most likely scenario to me. Hyperinflation sounds like a lot less fun than "Jubilee", but perhaps they amount to the same thing.

*I am quite willing to admit having very little understanding of anything involving money or economics. I used to feel bad about this until I realized that what William Goldman said about Hollywood applies. You can have a (pseudo) Nobel in economics and still bring about ruin.

1 comment:

TGGP said...

I think Casey Mulligan had said "Wall Street will drown alone".

Economists may not know much, but I think the rest of us know even less.