Economics Burlesque: Debt

Sun, 25 May 2014

I wrote in a previous post about how much I enjoyed the Economics Burlesque event on pay inequality, so I went along on Tuesday night to their next event at the Cockpit Theatre, this one on ‘the Debt’.

Unlike pay inequality, which I have thought about a lot and came along with some preconceived ideas, I had thought surprisingly little about debt - maybe a bit about the morality of high interests, but not much beyond that.

Facilitator Timandra Harkness introduced James Meadway from the New Economics Foundation, who talked knowledgeably (and at times provocatively) through some of the historical dimensions of debt and debt cancellation, before opening up for audience members to share ideas and raise questions.  It really got me thinking, and though I wasn’t convinced by everything said, it was good to hear that not everyone proposes either doing nothing or destroying the system.

There is enough overlap between the question of debt and other topics that I’ve thought and written about that I decided to write down my thoughts.  As with all my blog posts, I reserve the right to change my mind as I read, talk, listen and think more about this in future.

Debt is when one party owes another party something: usually money, but it could be property or labour.  It is possible to imagine a world without obligations, or at very least, without obligations being legally enforceable.  In such a world, I don’t believe money in its present form would exist, because money is only valuable because we believe someone (the central bank, shops) are obliged to exchange it for something (e.g. gold, silver) of value.  But we could still accumulate assets, exchanging with others to improve our position in a way that didn’t give rise to obligations.

The first thing I’d say about such a world is that it most likely wouldn’t be equal, or fair in the sense that people normally consider fairness.  Some people have greater ability to produce assets.  Luck affects our accumulation.  Theft would occur.  I believe that in such a world, the rich would still get richer, accumulating assets and increasing their ability to further accumulate assets.   Those that for whatever reason could not earn enough to meet their needs, even for a short period of time, could only survive with the charity of others or government support.  That said, I like to think that they would get such support, because it isn’t in the interests of those with assets to let others get desperate and we don’t like to see others starve to death.

Extending from that world, there are good reasons for allowing legally enforceable obligations.  Looking at a societal level, if I want to build an asset (e.g. a shop or factory) that I can’t afford now, knowing that I will have the money later, and someone else can lend me that money, doesn’t it make society better off to allow us to freely create that obligation?  On the other hand, it is easy to see how those (individuals and nations) that can’t earn enough to meet their needs (or wants) might use debt to disguise the problem rather than forcing it to be addressed (what someone at the session described as a ‘safety valve’), but ultimately creating a worse situation.

There is an additional ethical question: is one person owing to another person a socially harmful situation best to be avoided (the word 'pernicious' was used several times at the session), or does their freedom to make their own decisions outweigh any such concerns.  I don’t think have a satisfactory answer to this, and I’m sure readers will weigh these considerations according to their own values.

I therefore don’t feel able to conclude outright that debt is either good or bad, and very much agree with one of Meadway’s statements that debt is a red herring issue.  If my main argument against debt is that eliminating debt would force us to become more caring and redistributive, I don’t see why we couldn’t be more caring and redistributive while still allowing the benefits of debt.

The next Economics Burlesque event will be in June.  The date and tickets will most likely be up on the website in the next couple of weeks on  Economics Burlesque.