Economist James Galbraith thinks a debt jubilee is both advisable and likely to happen (in some form). He spoke with EricLevitz
This is sound macroeconomic advice. Photo: Justin Lane/EPA-EFE/Shutterstock The Babylonian Empire had a problem. Humanity’s banking craze had just gotten under way. Money lenders were in the temples making grain loans to farmers. This expansion of credit was helping to facilitate trade and agricultural production. But over time, the proliferation of debt was also creating big headaches. Subsistence farming is a tough business, even in good times. People often fell behind on their loans.
There’s a certain presumption that what can be shut down can be reopened—that the natural course of events is a rapid economic recovery. And that’s what I’m taking issue with. Every business and household has assets and liabilities. And what’s happened is that their assets have been diminished but their liabilities have not. Unless the liabilities are somehow taken care of, they’re going to be burdened by their debts for a long time to come.
You can flood the system with cash on a short-term basis, but that doesn’t solve the investment problem or the consumer-demand problem. So, inevitably, there’s going to be a big reconfiguration. Exactly what form it takes, I don’t know. One thing you could do is buy the capital assets of firms that are in principle viable, or that could be viable at a lower rate of return; basically, buy off the landlords and then set up some kind of a cooperative model with the operators.
I just saw that the city of Long Beach is extending its moratorium on evictions and foreclosures. That kind of step is going to have to be taken essentially everywhere. And once you’ve got that embedded in people’s consciousness — that it is not legitimate for people to be evicted or foreclosed on as a result of the pandemic — then the question of how much of the debt people can actually repay, particularly if the recovery is slower than expected, seems unavoidable.
After 1945, we took a different approach. The interallied debts were canceled; we didn’t insist that the British pay us back. They had nothing to pay us with anyway. And then, in 1953, we wrote down the German debts. As a result, Western Europe emerged from the war financially reset. And the same was true inside the United States. Big debts were accumulated in the 1920s. The Depression cleared much of that away through mass bankruptcies; the debts weren’t paid, but they were largely written off.
These ideas of market equilibrium are archaic. They date back to the 18th century. Or, really, to classical China, to the 5,000-year-old concept of celestial harmony, yin and yang. That’s how they came into Europe, through a study of China in the 18th century. From there, they diffused to the French physiocrats and Adam Smith and then down to Alfred Marshall and the supply-and-demand analysis. That’s where economists get this stuff.
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