Debt Jubilees: An Ancient Solution for a Modern ProblemNews at Home
tags: debt, student debt, Debt Relief
Richard Vague is Secretary of Banking and Securities for the Commonwealth of Pennsylvania. He currently chairs The Governor’s Woods Foundation, a nonprofit philanthropic organization. His new book is The Case for a Debt Jubilee (Polity Press, Nov. 22, 2021). Learn more at richardvague.com.
The views expressed in this article are those of the author and do not reflect the official policy or position of the Commonwealth of Pennsylvania.
In many of the most prominent ancient civilizations, including ancient Babylon, Egypt, Sparta, China, and others, excessive household debt was a huge and recurring problem. Debt, which was both a necessary and pervasive element of these economies, did many of the same things then that it does now: it facilitated payment for labor, allowed for the acquisition of supplies, and bridged the time between planting and harvest — the sowing and then the reaping of profit.
Some families in these agricultural societies would find themselves with little option but to amass debt to survive, but this debt could cause them to lose their land, their means of sustenance, and even their liberty. In the tragic form of debt bond servitude, lenders took possession of family members as “repayment” for crippling debts. Interest rates were high and lenders quickly learned the power of compounding. These ancient economies would sometimes reach the brink of collapse under the staggering weight of private indebtedness.
For this reason among others, kings devised debt forgiveness or amnesty as a solution. The ancient Israelites took debt relief an important step further: they removed it from the realm of a king’s whims and encoded it into their laws, making it recur the year after seven cycles of seven years. Debt relief changed from an ad hoc to a structural aspect of the economy.
The Israelites called it Jubilee, after the ram’s horn, or yobel, that was sounded to joyously proclaim this freedom from the burden of debt.
A key Old Testament passage, Deuteronomy 15:2–3, describes clearly the time when these debt amnesties were proclaimed: “Every creditor shall cancel any loan they have made to a fellow Israelite. They shall not require payment from anyone among their own people, because the Lord’s time for cancelling debts has been proclaimed. You may require payment from a foreigner, but you must cancel any debt your fellow Israelite owes you.”
Today, we find ourselves with a similar private sector debt accumulation problem, and the idea of strategic debt jubilee is arguably more urgent than ever. We were drowning in debt before the COVID-19 crisis, and now we are deluged by it. Household debt now totals $17.5 trillion, up 320 percent from 1950 in relation to income.
These high debt levels are asphyxiating many households and stifling economic growth. In my investigations of household debt, I’ve talked with families encumbered with all of the following: mortgage debt as great as or greater than the value of their home; student loans still outstanding for the parents, topped by new student loans for the kids; and large debts tied to some unexpected healthcare expense. Families with high debt are far less able to pay for their own children’s college, build additions to their homes, buy appliances, or start new businesses — the very types of things that power an economy.
The high burden of this private sector debt has also been an underlying issue in several of our recent, and worst, social and economic problems. Runaway household mortgage debt growth brought the 2008 global crisis. Some commentators believe that the residual burden of this crisis debt helped kindle the discontent that led to Donald Trump’s election in 2016. This debt has also exacerbated racial injustice, has been a factor in our opioid crisis, and is a key element of rising inequality.
We need to think creatively. For example, we could introduce a program to let those with student loans get debt relief in exchange for volunteer community service. We could introduce regulations that make it easier for banks to provide mortgage loan relief for loans that are underwater or in arrears due to COVID-19. We could introduce healthcare debt relief programs for surprise medical bills or unexpected but critical healthcare needs. We could streamline household bankruptcy laws.
Debt relief initiatives are not quixotic, impractical dreams of the soft-hearted, but a key component of a well-functioning economy. All would benefit from a modern debt jubilee. Households would be financially stronger, and governments, businesses, and financial institutions would be better off because those households would be stronger.
Like our ancient forefathers, we need to reset our economy by offering hard-pressed debtors a jubilee now, not in some utopian future.