ROOTS

On Wednesday the Croatian government announced a plan to eliminate the debts of about 60,000 of its poorest citizens. The announcement garnered a lot of attention even if the relief being offered is more modest than the headlines would suggest (maximum debt relief is capped at around $5000 US). The idea of debt cancellation used to be confined to the political fringes; now it is an acceptable idea to advance in polite society among Serious People. David Graeber's Debt: The First 5000 Years strongly advocates a universal debt cancellation policy. With his argument in the back of my mind I wondered a few weeks ago if we couldn't apply a similar idea to non-violent inmates in our prison system.

Ideas like debt cancellation or amnesty for incarcerated people are often dismissed out of hand despite being no more or less ridiculous than many of the things regularly taken seriously as public policy. On its own merits, Croatia's plan isn't hard to justify. The inherent problem with this kind of plan, though, is that these are superficial solutions to institutionalized problems. What good does it do to offer debt relief to a few people when all of the social, legal, and economic structures that bury people in debt remain in place? Why bother letting everyone out of prison if the institutions that keep the prisons overflowing with inmates aren't going to function any differently?

If 60,000 Croats get debt relief and nothing else changes, many of them will end up back in debt in time when they confront the same lousy job market, the same parasitic lending practices aimed at the poor and desperate, and the same maze of punitive fees that turn modest debts into large ones over time. If Americans emptied out the prisons, does anyone doubt that our law enforcement and justice systems would have them full again within a year or two?

It's nice to offer debt relief. It's much more useful to offer relief from the institutions designed to bury people in debt.

Be Sociable, Share!

28 Responses to “ROOTS”

  1. Xynzee Says:

    The biggest reform would be the end of "EZI" finance. Though the shock waves through the economy would be devastating in the immediate term.

    Very few industries are based on a "cash" only system today, and are heavily predicated on a borrowed money model. Mobile phones/services, cars, washing machines… whole industries would come crashing down. If we thought the GFC or Great Depression was bad we haven't seen any thing yet.

    But outlawing payday loans would be a great place to start.

    Ensuring that wages are liveable isn't the magic bullet. People on the bottom rungs though the most vulnerable to the exploitative vulture model of payday loans, aren't necessarily the ones with the debt problem.

    Finding yourself at a payday lender because the car you need to get to work needs serious repairs is an understandable situation. So debt forgiveness of $5k actually would go far for them.
    The bulk of household debt is higher up the ranks. It's people with decent jobs with little to no impulse control where the problem lies. A basic or secondhand car won't do, it *must* be a VW or BMW. Hand me down or secondhand furniture, no way! Badged electronics, computers, $5000 espresso machines, holidays… it all adds up. On top of $50k+ on university debt.

    And those people are… mostly white and "middle class".

  2. Anonymouse Says:

    I agree with Xynzee; even a one-time bailout of $5k could prove enough to get people out of the debt cycle, particularly in someplace where the salaries aren't high, so the debt isn't that high. Breaking the vicious cycle of payday loans might be all someone needs.

  3. xynzee Says:

    There are numerous groups like this one:
    http://www.goodshepherdmicrofinance.org.au

    (FYI–eau and GlenH)

    They do low/no interest loans for less than $1200.

    I was speaking with someone who works for them. They organise loans for those in real strife, such as car repairs or a new fridge. He said they often do not expect a full return on the loan.

  4. c u n d gulag Says:

    "What good does it do to offer debt relief to a few people when all of the social, legal, and economic structures that bury people in debt remain in place? Why bother letting everyone out of prison if the institutions that keep the prisons overflowing with inmates aren't going to function any differently? "

    Well, it would be a start.

    Then, you start to work on what causes poverty.
    And one of them, is that in many poor families, someone's in jail.
    And, in a privatized one at that!

    End the privatization of the prison system, if you want to start to help.
    There's too much incentive to put, and keep, people in prison, when there's money to be made.

    As a matter of fact, end the privatization of all things that government used to do.
    Those privatized government jobs pay peanuts, compared to what the government should, could, and would, pay!

  5. Jestbill Says:

    Moral hazard. No, not that moral hazard!

    I mean the moral hazard inherent in paying people to imprison people. You'll just get a lot of people in prison.

    Paying people to treat medical problems has similar effect.

  6. Dial Tone Says:

    Steve Randy Waldman's take on debt in the US:

    "Wall Street is not the source of the pain. On the contrary, the financial sector has been put this decade primarily in the service of hiding, literally of papering over, unsustainable trends in the current account, income distribution, human and physical capital deterioration, and the sectoral composition of the American economy. The conventional wisdom is that this is a financial crisis, and that so far "Main Street" has been largely insulated from the catastrophe. That is rubbish. The cancer is on Main Street, and the tumor has been growing there for years. Wall Street provided drugs to hide the pain and keep us going, palliative but not curative. What is happening now is those drugs are wearing off. The American economy is fundamentally unsound, and has been for some time. We would have noticed sooner, were it not for financial methamphetamine conjured by mad scientists in lower Manhattan from a whirlwind of foreign central bank money."

    http://www.interfluidity.com/posts/1221805538.shtml

  7. Skepticalist Says:

    Are there no prisons? Are there no workhouses?….

  8. mothra Says:

    Funny you should mention payday loans, Xynzee. My state, New Mexico (also the poorest state in the nation, with the poorest residents) is the only state that has no caps on the interest allowed to be extracted by these sleazy loan companies. Every year, a bill is floated in our legislature to cap the interest. Every year it fails because the payday loan industry has a lot of lobbyists who wine and dine our legislators. This year, the bill didn't even make it out of committee because the chair of the committee, one Yvette Herrell (R–as if that is a surprise) tabled it until she got a bill drafted by the loan industry. No, I am not fucking kidding. I guess Rep. Herrell forgot that her constituents elected her and not the fucking payday loan industry?

  9. anotherbozo Says:

    Again Ed plays Debbie Downer, pointing out that there are no quick fixes to our systemic feudalism. Where's the cockeyed Yankee optimism? The can-do spirit? I think I'll go listen again to Pharrell Williams on YouTube. (569+ million views!)

  10. Jesse Says:

    But Ed, that would be like…having a revolution and instituting the Socialist Federal Republic of Yugoslavia or something.

  11. Ed W. Says:

    It's odd that you're doing a Croatia story given that I am in Zagreb *right now*! Are you stalking me or something?

    Commenting on this website, watching Bundesliga soccer, getting ready to take a bath…do I know how to party or what? In my own defense, I am tired from playing tourist, jet lagged, married, and have a kid at home, so the thought of going to a night club for an evening of Euro-pop sounds like the worst kind of torture. Plus I need to rest up for a Croatian wedding tomorrow, where the locals will undoubtedly try to murder the American visitor (me) with shots of … whatever it is they drink here.

  12. Khaled Says:

    We used to laws against that kind of crap in our country, but now it's seem as "job creation". There was a story a few months back about some "rent-to-own" places in the NYT (I think) and the outrageous fees that they charge. Oh, and if you missed a payment, you didn't actually have any equity in the thing, so it stopped being yours the minute you were late. A lot people in the comments sections (why do I torture myself by reading those… oy..) we saying that the people deserve it because they were bad at math or were greedy, etc. Basically, we are living in a "I got mine, fuck you" world. We want people to suffer because they made a mistake or circumstances changed and people can no longer afford things that they used to. My Sister-in-law lives in PA Coal Country, and needed a new car. She went to a dealership that offered her a used car for some ludicrous payment over an insane amount of time. I did the math and the interest rate worked out to something like 900%. My wife and I begged her to *not* do the deal, and she ended up getting a Hyundai at the dealership with a much more reasonable offer. The lesson? These companies deliberately target people who don't have enough saved up to purchase things and have to rely on credit or payment plans. And then they charge them rates that would embarrass a loan shark. We talk about "freedom" in this country, and about the "nanny state". What kind of place to we live in where we allow companies to exploit the working poor and tell them it's their fault that they're broke and have nothing, since someone else someplace else at some other time had bootstraps that they pulled themselves up by. In the words of the Dead Kennedys, it's as if we want to kill the poor.

  13. Skipper Says:

    Some of us are old enough to remember when debt wasn't a problem in the US. Back before the '70s, there weren't such things as credit cards. Rich people had charge cards that prevented them from having to carry a lot of cash and which they paid off every month. Normal working people didn't get them. They may have had a store charge card, but they had to be pretty credit worthy. Most people would buy stuff on lay-away. They would make payments up front and when they made the last payment, they would get the item.

    Then, the powers that be (PTB) started depressing wages. That was a threat to the economy. We're a demand economy, and if people don't have money, they don't buy and the economy suffers. All of a sudden, people could het credit cards, and it was like free money. At the same time, advertisers started convincing them they were bad people if they didn't buy, buy, buy. Put that together with the "free money" and you had an instant debt crisis.

    Then, came mortgages. When I bought my first house in the mid-'70s, getting a mortgage was an ordeal. The bank not only looked at my finances, they called my company to make sure I was going to be there a while. The loan officer went to the house to inspect it and appraise it personally. The bank held the mortgage until it was paid off. They made their money on the interest that I paid. So they had an interest in making sure I would pay.

    Then, the whole arrangement changed. Banks stopped holding onto mortgages. They sold them off — sometimes before the ink was dry. They no longer cared about the condition of the house, whether it was worth what they were lending on it, or whether you could or would pay. They made their money on the origination of the loan. They didn't care what happened after that.

    This is what brought about the mortgage crisis. Bankers and now mortgage companies were lending money to people they knew couldn't pay for overpriced houses and then selling those mortgages to cities and town, pension funds, etc. as AAA securities. You had people making $50,000 taking out a mortgage on a $400,000 house that later became worth only $200,000.

    So, add that to the maxed out credit cards and you've got yourself a credit crisis.

  14. Nate Says:

    A good start would be to make payday loan places illegal.

  15. April Says:

    @Mothra – In reality, it WAS the payday loan companies that elected Herrell. Without their money, how would she have been able to convince the rubes that "gubmit regulations are bad/commie/socialist"? What we need first is to get the money out of campaigns. Unfortunately, what with our current supremes, that's not going happen any time soon.

  16. Mo Says:

    … a-a-a-a-a-and cue

    <a href="https://www.imf.org/external/pubs/ft/fandd/2007/12/pdf/books.pdf"The Persistence of Poverty

    Anyone who hasn't read this, needs to.

  17. Mo Says:

    And fuck HTML and the lack of an edit function.

  18. Mo Says:

    You friend Mike's review:

    https://rortybomb.wordpress.com/2009/12/03/persistence-of-poverty-and-increasing-marginal-utility/

  19. Skepticalist Says:

    Simpler, although not so lucrative, payday loan activity was the company store. I don't know if such a thing still exists in the old style. Uneducated barely literate workers were the most prized. All they were encouraged to know was how to sign the paycheck. Anything else got in the way.

    Payday loans remind me of this all the time.

    I've had credit cards for 50 years but I've usually managed to use them the way credit card issuers hate. I'm surprised it's legal. I'm sure they're working on it. I still get four or five offers for other credit cars every month. Beats me.

    My throwback existence partly results from the fact that I had parents who were adults during the depression. It's had quite an effect. One result is that I've lived in the same house for 52 years. It's accidental that it fits in with the reality of 21st century version of the miracle that is America.

    It makes me boring as hell.

  20. Linda Says:

    BTW: there are some groups coming up with alternatives to payday loans or the company store. LISC is partnering to let employees of participating employers have access to low-interest microloans from local credit unions: http://toledolisc.org/?p=1432

    It's going on in other cities, too. But payday places are hard to shut down, even if there are (voter passed) laws on the books. They will litigate and lobby till the cows come home. Just ask us here in Ohio.

  21. Mo Says:

    And for the truly hard core econ junkies:

    <a href="http://blog.mpettis.com/2014/05/why-a-savings-glut-does-not-increase-savings/"Michael Pettis

    Good for busting loose from national navel-gazing and taking a look at the worldwide financial tidal wave swirling around one's ankles.


    a savings glut need not result in an overall rise in savings. It can just as easily cause a consumption glut elsewhere whose positive impact on total demand fully mitigates the negative impact of the savings glut. The idea however that a savings glut can simultaneously create a consumption glut seems to be one of the most difficult things for many economists to understand, perhaps because it seems at first so counterintuitive.

    There is so much misunderstanding about the savings glut hypothesis that much of the debate has verged on the nonsensical. Unless it unleashes a truly heroic surge in investment – productive or nonproductive, although the latter can only be temporary – a savings glut must always be accompanied either by a consumption glut elsewhere or by a rise in unemployment. No other option is possible. This is why savings gluts rarely result in higher overall savings.

    This is also why any serious discussion of the savings glut must eschew moralizing and must focus instead on the direction of causality. Did distortions that created a savings glut force the creation of a consumption glut, or did distortions that created a consumption glut force the creation of a savings glut? Any analysis that does not recognize that both must occur simultaneously, and so must be resolved simultaneously, cannot possibly be correct.

    I had to read his books a couple of times before I felt comfortable shooting up straight shit like that.

  22. Mo Says:

    Once again, fuck HTML

    Michael Pettis

  23. Mo Says:

    Yo, he's on his corner again:

    when someone like Yanis Varoufakis proposes that there are ways in which partial debt forgiveness increases overall economic value, instead of merely creating moral hazard, worried economists often recoil in horror, while finance or bankruptcy specialists (and an awful lot of hedge fund managers) shrug their shoulders at such an obvious statement.

    You can read the whole thing right here:

    Mmmmmmmm

  24. democommie Says:

    Fuckin'tehpoor; it's job 1!!

  25. Kaleberg Says:

    Debt forgiveness should be popular with fundamentalists. The Old Testament demands it. Debts cannot be enforced past a seven year limit. Slaves, often enslaved through debt, must be freed after seven years. Land cannot be alienated from its owner, even if seized for debt, for more than seven years. There's all sorts of amazing stuff in the OT.

    Of course, a lot of these guys eat pork. Like most fundamentalists, they pick and choose which religious practices they consider absolute.

  26. democommie Says:

    "Of course, a lot of these guys eat pork. Like most fundamentalists, they pick and choose which religious practices they consider absolute."

    See: Thomas, Clarence, SCotUS, bein' pissed about teh gaymawwiage as of today.

  27. Unsecured funding to Physicians in Practice Says:

    Hi,
    Maybe a little off topic, nonetheless your capacity to obtain a financing for clinical practice working capital loan could be difficult if you don't use with the correct lender. So applying with the proper lending institution will certainly enhance your ability for a quicker application process and fast funding. So make sure you contact the lending institutions and discover if they concentrate on the medical practice loans. If they do then fantastic, if they do not then search for another lending institution. Hope this helps.
    BTW terrific blog post