The End of Debt

Voters won't be debt slaves forever. This is how it could end.

You should know - I'm not an Economist. The other thing I'm posting today on this blog is an appreciation of DOWN WITH LOVE - so many would suggest my opinion of movies isn't to be relied on either.

I do feel qualified to comment however as most actual economists of my generation* have nil credibility at this stage. They are salesmen, able to sell a self serving, historically disastrous creed like Neoliberalism (aka monetarism aka supply side aka trickle down economics) to press and politicians as common sense. But I'll come to that later.

There is a lot politically which suggests there may be trouble ahead - Brexit. Migrant Crisis, ISIS but also quite a lot which suggests economically events are heading in a strange non-sustainable direction, and I'm not just talking about surreal negative interest rates.

Before I make a bad summary of the thoughts of three 'renegade' economic thinkers let me spin one idea past you.

In 2006 I would wash my car using a machine, a car wash. A decade later, in the still futuristic sounding London of 2016, it is somehow cheaper to have three human beings do this. Does that suggest to you that the current economic model in the early 21st century  is working ok?

Paul Mason in his book
PostCapitalism: A Guide to our Future 
suggests this sort of example is one of the indicators that the current form of Capitalism is starting to creak. NeoLiberalism (and it's favourite tool Globalisation)  has destroyed the bargaining power of Labour to such an extent that the spur for technical innovation has gone. Soon the Neoliberals like Osbourne and Boris Johnson will find an economic justification to finally do the job of the Luddites and destroy all the (modern equivalent of) looms, because we will have moved back to the 17thC and there will be enough desperate people to do everything by hand.

Thomas Pikketty in Capital in the Twenty-First Century suggests vast increasing wealth disparity is inevitable, as only two world wars gave us the vaguely egalitarian world we have now.

But this is about debt right?

Renegade Economist Steve Keen, who predicted the crash of 2008, and the Greece collapse, has the fundamental cause of this problem as the attitude to debt. The Neoliberal excuse we are given for Austerity in the UK is that we have to balance the budget, as if it were running a household. As Keen points out however a government is not a house, it is more like a bank. It makes a profit by lending - a bank which ran at a surplus and had more deposits than lending would shrink, which coincidently is exactly what is happening to all the western economies as we stare at the next bank bailout.

Even more worrying for us all is our own Personal Debt, which has rocketed as costs have gone up and living standards and wages have not risen for 30 years. As economies continue to stagnate we will slide further into our role as debt slaves.. or..

A situation which absolutely cannot continue - won't. A correction will come eventually, as after a certain point ever increasing debt and the money behind it will become meaningless.

Keen's idea, People's QE, is effectively a debt write off, with funds given to debtors to clear debt and equivalent amounts given to savers to sell the bitter pill to them. Economically that might make sense to Keen but politically it is difficult to see how it happens. Certainly in this country anything like a debt write off in the current climate is silly. Bank of England gives me money? Really? How would you really carry that off in a way that would be accepted and wouldn't wreck confidence in the currency?

One way would be to take  the fine example of ... North Korea.. and just introduce a new currency.
Perhaps one of the least crimes against the North Korean people was the decision to completely scrap the currency overnight and introduce a new one, making all private savings worthless. It was a cruel disaster.
So lets not suggest that.

You could perhaps make a new currency voluntary or subject to a national referendum, as part of a slow economic and political union. Those transferring to new currency would see debt in the old one written off and those with savings could be offered a multiple of the value of their old savings in the new currency.

This kind of debt right-off would be a way to sell a new, probably international currency to populations which would otherwise be reluctant to lose some (or perhaps all) national sovereignty.

"Don't worry about your debt in that terrible old £ sterling - using the new EuroDollar you'll be starting at zero or at 2x your saved funds in the old currency"

I'm not saying I want this to happen, and I'm not speculating on how politically (I would hope they would learn some lessons from the mess that is the current EU) I'm just creating a scenario in which the inevitable could take place.

*As Steve Keen points out todays Economics students are like all modern students, in that they are massively and unfairly loaded with debt. I literally can't wait to see what their alternative to Neoliberalism is going to look like.