Forgive us our debts: the case for a Jubilee
Post lockdown, are we open to the idea of an international debt Jubilee?
Artur Widak/NurPhoto/PA Images
If we are not very careful, the ending of lockdown will be followed by Austerity II. Just as Austerity I was imposed on Britain by the Conservative-Liberal Democratic coalition in 2010 after the financial crash two years earlier, with devastating consequences that many people are still suffering from, there is now a considerable risk that the present Conservative Government will look to the same medicine, with even worse consequences. Those most affected will, of course once again, be those least able to bear the burden. A startling thought – even less able than before!
The Great Lockdown, which has dealt a stunning blow to economic activity across the world, is resulting in a truly enormous national debt, the likes of which we have never seen. What is now urgently necessary is some radical alternative to the pain and misery of another long-term effort to pay off this gigantic debt mountain – an alternative to a second dose of austerity even more severe than the first. And even more severe, by a factor of ten, in the developing world.
There is such an idea around, and it is beginning to surface both on the left and right of the political debate. It is the idea of Jubilee, of wiping the slate clean and starting again afresh. The main argument for Austerity II will be that old Thatcherite slogan, there is no alternative. Jubilee is an alternative.
There are those who argue for a debt moratorium or "clean slate" as a trigger for an explosion of growth driven by a market-based economic system. I think this is a good idea or a bad idea depending on whether the theoretical foundation for it is Hayekian or Keynesian. The former was the key to Austerity I, the theory that the remedy for government overspending is to cut that public spending.
The David Cameron coalition which took over from Gordon Brown's government in 2010, identified three main targets for the austerity axe, among others; spending on welfare, spending on health, and spending on local government. This was Austerity I. It was coming to an end under Theresa May, and Boris Johnson was in the process of reversing some of these cuts, though not enough of them, when the coronavirus pandemic arrived and swept all such considerations aside.
John Maynard Keynes, whose views helped to ease the world out of the Great Depression in the 1930s, would have argued the opposite. Instead of taking money out of circulation, the Government should pump it in. The more money in circulation, the theory goes, the more wealth is created by it. Money generates more money: it multiplies. If people have money in their pockets they go into shops and buy goods, which other people have manufactured. Round it goes, getting bigger each time.
Indeed, factory workers, and shop assistants, are also shoppers themselves, so the system is self-fuelling. The government's job is to feed money into the economic blood stream by seed-corn financing of new businesses, by investment in public infrastructure, and by supporting incomes. A certain brand of free market ideology regards this as total heresy and "economic illiteracy". But are they really prepared to inflict Austerity II on a suffering nation, and take the blame for it?
So what about the debt? This is where Jubilee comes in. If I owe you a vast amount of money and you owe me a vast amount of money, why don't we just call it quits? The idea is Biblical (Leviticus and Deuteronomy), and refers to the custom in ancient Israel of releasing slaves from bondage and leaving farm land fallow, once every seven years. All debtors were then absolved of their obligations.
It is more a moral ideal than a valid economic theory, but it inspired the Jubilee Moratorium movement in the run up to the Millennium. A massive public campaign was energised across the globe to persuade governments to relieve the most heavily indebted countries of debt burdens that were impoverishing them even further, making them ever less likely to repay them. The system is still working, and unrepayable national debts are still being written off. The Jubilee movement was effectively inspired and promoted by Pope John Paul II.
Historically, Germany has benefitted from debt moratoriums twice: once when post-Versailles reparation payments were finally wiped out, and again in the 1950s. The German "economic miracle" followed. Under pressure – ironically, mainly from Germany – the EU refused a debt moratorium to Greece after 2010, inflicting grave damage on that country's economy and people with a severe dose of austerity.
This raises the issue of moral hazard. Wasn't Greece the author of its own misfortune, through irresponsible and uncontrolled public spending? Weren't the Greeks living off other people's money? And it is true that some of the most indebted countries which had their debts forgiven were highly corrupt and run by small groups of the very rich, who would rather build themselves palaces than provide clean water for their people. Even in such cases, however, debt relief did also help the poorest. Interest payments alone had been crippling.
The wiping out of debt in the post-coronavirus recovery process would have to be discriminating, as moral hazard is still an issue. But loans to companies helping them to stay afloat during the lockdown could easily be converted into 100 per cent grants without further damage to the national finances. Government bonds could be reissued at a discount. University tuition fee loans, many of which are unlikely ever to be repaid anyway, are likewise extinguishable without doing any harm. The idea behind them, that a university education is a purely private benefit rather than a public one, was always flawed. Education invariably enriches the common good.
It was hardly noticed a few weeks ago that the Government announced it was taking away from hospital trusts the burden of repaying their PPI debts. This was a form of debt cancellation, an example of the Jubilee "clean slate" principle. There are many other uses for that idea. But above all, the Government has to find some way of dissolving that huge post-coronavirus burden on the public finances other than by reimposing austerity. Moral hazard is not relevant, as nobody brought the pandemic on themselves by living recklessly.
Jubilee is the way forward. Can Pope Francis do what Pope John Paul II did in Tertio Millennio Adveniente, and lead the world to a better place?