Rob Johnson, a former banker and former investment partner with George Soros, now heads the Institute for New Economic Thinking (INET). He endorses debt reduction because social destruction is the great uncalculated cost of doing nothing. “There are so many communities that are being unnecessarily destroyed right now,” Johnson says, “not to mention pension funds and insurance companies holding mortgage securities that are trading at lower value because the destruction is damaging the property. We are in a really weird place where the whole economy—the reallocation of resources, the quality of communities, the funding of municipalities, all of it—is blocked by the banks doing ‘extend and pretend.’ ”
…The ancient Hebrew society worked out a solution for recurring debt crises—you can find it in the Bible. Every seven years (in some interpretations, every fifty) the cycle of debt accumulation was erased by a declaration of general forgiveness. This was called the year of jubilee, and Christianity embraced the same moral principles (“forgive us our debts, as we forgive our debtors”). Property was returned to the original owners, and children and slaves were freed. Everyone was redeemed. The economy was freed to start over again.
Graeber thinks Judaism’s reform laws were probably influenced by the Babylonians, who issued “clean slate” edicts when excessive debt accumulation threatened social crisis. Graeber notes that nearly every society, ancient and modern, shares moral confusion about debt, with contradictory attitudes. On the one hand, “Paying back money one has borrowed is a simple matter of morality.” On the other hand, “Anyone in the habit of lending money is evil.” Americans share this ambivalence.
Here is what Americans can learn from the ancients: severe inequality of wealth and income is not just a question of morality. Inequality is the fundamental source of the disorder that leads to financial crisis and chokes off the economy. Ancient religious principles like the limits on interest rates were a practical way of maintaining balance in economic life. Taking away those rules—as US politicians did when they repealed prudent regulations of banking and finance—in effect authorized the growing inequality that eventually leads to chaos.
Modern economists and their supposed “science” generally ignore the ancient wisdom. Most would probably dismiss the connection as folklore. Some economists study inequality and what drives it. Others study financial fragility and macroeconomic volatility. But the two subjects are seldom addressed as underlying cause and effect. Gross concentrations of money at the top help explain why the system eventually stalls out. This is a basic insight that ought to inform the agenda for recovery. Inequality matters.