If we're truly looking for paths to economic stimulus -- which is about stimulating optimism as much as anything else -- then we ought to consider getting closer to the source and stop nibbling around the edges of corporate malfeasance. Instead, let's directly incentivize and bring relief to actual people, giving them a new start by wiping the ledgers clean and ensuring that their future decisions will never again have to be governed by the demons of debt. For the price of two massive bank bailouts, we could have essentially bailed out every American from under a mounting pile of indebtedness.
By now, the average American debt is mildly staggering if not outright shocking. Households in the U.S. carry somewhere around $10,000 in credit card debts alone, and in 2008 individual fixed payment debts (e.g., auto loans, lines of credit) totaled almost $17,000 per person. When we add in mortgage obligations and student loans to the calculation, we start to approach numbers akin to the U.S. national debt, which breaks down to about $500,000 per capita. It's certainly no secret, but it needs to be recalled: We are a debtor nation -- and we've only begun to feel the effects of this eventuality.
Some want to assign blame to either wasteful consumers or profligate lenders. But this is a cultural phenomenon, and no one is immune to acculturation. We've set up a system where payment plans, no-doc mortgages, and massive loans for education (masking as financial aid) are the norm. Money is the means to everything from food to sex, so it's no surprise what people are willing to do to obtain it, from criminal activities to simply ignoring the rising tide. A few timely pieces of data from creditcards.com tell the story:
- The average outstanding credit card debt for households that have a credit card was10,679 at the end of 2008.
- The average American with a credit file is responsible for16,635 in debt, excluding mortgages.
- As of March 2009, U.S. revolving consumer debt, made up almost entirely of credit card debt, was about950 billion. In the fourth quarter of 2008, 13.9% of consumer disposable income went to service this debt.
- Total U.S. consumer debt (which includes credit card debt and noncredit-card debt but not mortgage debt) reached2.56 trillion at the end of 2008.
- As household wealth has declined in the downturn, more American families are facing financial distress due to high debt burdens. In 2007, before the recession began, 14.7% of U.S. families had debt exceeding 40% of their income.
- Undergraduates are carrying record-high credit card balances. The average balance grew to3,173, the highest in the years the study has been conducted. Median debt grew from 2004's946 to1,645. 21% of undergraduates had balances of between3,000 and7,000, also up from the last study.
- 76% of undergraduates have credit cards, and the average undergrad has2,200 in credit card debt. Additionally, they will amass almost20,000 in student debt.
- Average credit card debt among indebted young adults increased by 55 percent between 1992 and 2001, to4,088.
- The average credit card indebted young adult household now spends nearly 24 percent of its income on debt payments.
- The average college graduate has nearly20,000 in debt; average credit card debt has increased 47% between 1989 and 2004 for 25-to 34-year-olds and 11% for 18-to 24-year-olds. Nearly one in five 18-to 24-year-olds is in "debt hardship."
The upshot is that we're burying ourselves -- and in particular our young people -- under insurmountable debt burdens. These obligations will stay with us throughout our lives, forcing hard choices in areas such as career options, relationships, health care, education, and child-rearing. While this cycle has spiraled out of control in recent years, contributing to the present "crash" that we're in the midst of, it's also an old story as well.
You can go back 50 years, or even 5000, and find some interesting parallels. Consider:
The smell of freshly mown grass filled the suburban air across America. At local cinemas, Ben-Hur was playing and people were lined up for blocks to see it. Satellites were being launched into the night even as a plane came crashing down on "the day the music died." The first Barbie doll premiered and Nepali women got the right to vote, but Swiss women were denied theirs. Fidel Castro arrived in Havana and his government was officially recognized by the U.S. Two monkeys became the first living beings to return safely from a space flight. The Dalai Lama fled Tibet, and the first picture of Earth from space was transmitted.
The year was 1959, and the modern world was stirring in a manner that we might recognize as similar to our own. While the decade ahead will become better known for launching the era that still lingers today, the doorstep year of '59 was perhaps the first to encapsulate the feel of a globally-connected, technologically-driven, consumer-oriented world. Half a century ago, the world stood poised to blossom into what it is today.
It's also the case that the crises we now face were sown then as well. Tibet, Cuba, women's rights, the space race -- all are still with us today. Economically, we learn that the "debt issued by the World Bank has been AAA-rated since 1959," and that the "war economy" was flourishing as defense occupied a larger and larger share of the federal budget. Tellingly, certain "radical elements" were already noting the coming trends:
"The concentration and centralization of economic power extends into the political sphere. There now exists relatively small group of capitalists, financiers, manage politicians, militarists, and labor leaders able to determine social activity by virtue of their overwhelming influence over the economy as a whole, including the defense establishment. [There is a] growing realization that, under conditions as they are now emerging, the traditional capitalist is doomed to extinction.... [T]he mass of the population is quite ready to accept a more radical change from the private enterprise to the state-controlled economy.... In this objective readiness lies the danger for the ruling groups, for in any period of economic stress, it may find expression in political attitudes which would force the free enterprise system into further retreat and give new impetus to those social forces that are steering towards a state capitalist economy."
The concentration of wealth and power, a state-controlled economy, a populace primed to accept significant changes in the workings of finance -- that was 50 years ago but it could just as easily be culled from today's headlines. Certainly times have changed on many levels, and a person from 1959 might find 2009 baffling if not incomprehensible. Still, the salient notion of 'debt as commodity' that has spiraled into today's financial meltdown could trace at least part of its genesis back to those simpler, halcyon times of a bygone day. Fifty years of debt and a thinly-veiled version of indentured servitude; five decades of the masses essentially living in a de facto work-release program from a massive debtors' prison; and a half-century of unsustainable and dehumanizing practices that have brought us to the brink of economic ruination. Things are tough all over....
So, perhaps it's time for some Jubilee. A few thousand years ago, people faced similar issues:
"In the Biblical book of Leviticus, a Jubilee year is mentioned to occur every fifty years, in which slaves and prisoners would be freed, debts would be forgiven and the mercies of God would be particularly manifest."
"A Jubilee calls for forgiveness and, more accurately, release and cancellation of debt. [D]uring a year of Jubilee, all debts must be forgiven, especially those of the poor. No generation, no family, no nation should be condemned to perpetual debt from one era to the next. Fifty years is long enough."
"The Jubilee year was meant to restore equality among all the children of Israel, offering new possibilities to families which had lost their property and even their personal freedom.... The riches of creation were to be considered as a common good of the whole of humanity.... The Jubilee year was meant to restore this social justice."
Some folks already have begun advocating for Jubilee legislation, specifically focusing on Third World debt but raising concerns applicable domestically as well:
"The Jubilee Act would cancel impoverished country debt, prohibit harmful economic and policy conditions, mandate transparency and responsibility in lending, call for a new legal framework to restrict predatory 'vulture funds,' and call for a U.S. audit of odious and illegitimate debts."
To be sure, there have been Jubilees declared by the Church in recent years, notably 2000 and 2008. But it's been a long time since the original spirit of forgiveness of debt and parole from incarceration has been observed. The Old Testament origins of the concept included a codification of "clean slate" principles whereby people could start over and in many cases even reacquire property they had previously been forced to sell. With an eye toward reclaiming these old-school radical notions, I offer the following guidelines for a new Jubilee that could be just the stimulus needed to turn things around:
- Cancellation of individual debts
- Forgiveness of student loans
- Restrictions on future lending and usurious interest rates
- Prohibitions against government deficit spending
- Elimination of debt-based trade and markets
- Abrogation of IOUs, liens, and mortgages
- Parole of nonviolent prisoners and commutation of fines and sentences
- Abolition of prison labor
- Decriminalization of "lifestyle offenses" including drugs
- Living wage paid in all industries and job sectors
- Ban on products created through sweatshop/slave labor
- Cancellation of Third World debts
- Suspension of Structural Adjustment Programs
- Return of land to displaced and colonized peoples
Naturally this will entail a substantial remaking of the political and economic map of the world. Yet ancient Jubilee years sometimes did precisely that, and were seen as fair to all because everyone (debtors and creditors alike) knew when they were coming. It seems to me that the present course of action -- namely funneling more and more money to corrupt lenders and wasteful industries, and exacting punitive sanctions on individuals and families who have been working and struggling to make do -- is really the one that represents a radical departure from the concept of fairness (and even celebration) that history counsels.
In the end, it's well past time to retire all debts, and furthermore to abandon the entire notion of debt itself. We need forgiveness now, not recrimination. We need to unlearn and forget the practices that got us into this mess in the first place. Simply put, we need a little Jubilee to break with the recent past and connect with a much older, time-tested set of practices. For many, the new millennium feels as if it's just now beginning, so let's kick it off with a clean slate for all and wipe away the taint of immiseration and despair.
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