Criticism of debt

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This article is about criticism of, and arguments against debt.

There are many arguments against debt as an instrument and institution, on a personal, family, social, corporate and governmental level. Usually these refer to conditions under which debt should not be used as a solution, e.g. to fund consumption for survival. Consumer debt and public debt deal with some of these issues. Calls for debt relief to the developing countries have been more and more insistent since the 1980s Latin American debt crisis, and, more recently, the Argentine economic crisis. Developing countries' debt has often been qualified as an odious debt and a mean of neocolonialism, in particular by "third-worldism" (tiers-mondisme) and the more recent alter-globalization movement.

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[edit] Economics

Some theories of economics argue that debt is itself a problem[citation needed], and should not be the foundation on which contracts are made between persons, organizations and nation-states. Those theories that hold it as wholly undesirable are often called creditary economics, and are also often related to theories of economics that look more basically at fundamental scarcities: clean air, clean water, safe food, shelter.[citation needed]

Debt is a major source of money creation in modern economies. Some economists, especially the Austrian school believe that fractional reserve banking should not be allowed and banks should not be allowed to lend money deposited in their accounts by individuals, unless they approve so. Money creation should either be banned (Austrian school) or be a government privilege.

Fluctuations in debt levels are the same as fluctuation in optimism (boom) and pessimism (bust). The middle path is to be advocated at the individual or collective level. In boom times, the debt/GDP ratio rises, this prepares tough times ahead, as sooner or later people are bound to realise that the reality does not match their irrealistic expectations, then they collectively stop to lend and borrow, bankruptcies and debt deflation follow.[citation needed]

[edit] Religion

Islamic economics, concerned with the equity of distribution of these things and the potential for unrest if simple luck is permitted to cause some to starve while others prosper, simply for having held a safer debt asset through a catastrophe, has alternative instruments that do not obligate repayment in the sense of debt but instead act as a joint venture type instrument. The justification for this is a hadith which states as a rule of trade: "nothing present for that which is absent". This avoids the problems of the devaluted asset or bad debt becoming a source of unrest later on, should it be devalued or defaulted through no fault of the borrower. Since Allah intends the misfortune to fall on all those involved, the argument goes, to leave the debtor obligated and the creditor with recourse to the state for collection, is to defy God.

The Biblical books of Deuteronomy (23:20) [1] and Leviticus (25:37) [2] explicitly prohibit lending at interest, and are the source of two of the 613 mitzvot (Maimonides #534 & #535), the commands of God to the Jewish people. According to Proverbs 22:7, "The rich rule over the poor, and the borrower is slave of the lender" (NRSV). Christian philosophy has historically also been concerned with these very issues, and the Catholic Church prohibited lending at interest throughout most of the Middle Ages. The words sin and debt are the same in Aramaic, and the Lord's Prayer can be read as "redeem us from our debts, as we redeem our debitors." The French philosopher Simone Weil has argued that debt is evil, because it leads us to the false belief that the past (a promise to pay later for instance) give us right to a certain future (a given money sum at a given date). God wants us to remain in the present, in His presence. Therefore any debt is something that moves us away from the feeling of God's instantaneous presence.

[edit] Feminism

Feminist economics is more concerned with the ultimately coercive nature of debt and the circumstances into which it is entered, and the consequences of having to liquidate one's resources, or even one's body (slavery, prostitution) directly, to repay debt undertaken for consumption - or mere survival. Unequal distributions of force required to collect debt, unequal vulnerabilities to coercive pressures of a society in general, are seen as hopelessly slanted against the female, who is a perpetual debtor, versus the male, who is a perpetual creditor, given the relative masteries of deadly force, and the vulnerability of mothers and the children to which they are closely bonded: debt bondage accrues more to women than men, and may even require the sale of children - often for sexual uses by men.

[edit] Environment

Green economics makes an argument from ecology: the ecological yield of natural capital is quite limited by current solar income and other factors, such as water, topsoil, shade, nutrients and pollination. Nature's services only restore the capital so fast. Any interest rate greater than this nature rate of restoration means debtors reducing their natural reserves, and thus the services themselves, simply to repay the cash debt. This race to the bottom is exacerbated by competition - thus the slowest-recovering systems are forced to depletion even faster by "need" to compete with faster-recovering ones which have a higher yield and thus likely receive more attention from the exploiter. The rate of depletion, needs to take into account the depreciation of capital equipment, which will need to be replaced. An example is fishery and forestry which are increasingly dependent on high-tech machines, creating fewer jobs, but depleting more fish stocks and forests, simply to repay the debts on equipment, which is ever more sophisticated. Thus, debt-financed infrastructural capital is analogous in this view to weapons: their only service is to compete, threaten and ultimately destroy all value in the long run. They do not "produce" on any kind of sustainable basis. The availability of debt itself to finance these machines and technologies is a problem, and not just of economics.

[edit] See also

[edit] References

  • de Grazia, Alfred, "Consumerism and Fiscal Disorder" chapter 65 in Reconstructing American History, Metron, Princeton, NJ 1999
  • Jochnick, Chris, editor, Sovereign Debt at the Crossroads: Challenges and Proposals for Resolving the Third World Debt Crisis, Oxford University Press, 2006
  • Nelson, Julie, "Ethics and International Debt: A View From Feminist Economics", August 2006 paper
  • Simms, Andrew, Ecological Debt, New Economics Foundation, London, 2005

[edit] External links