Policy Prescriptions vs. the Centrality of Debt

We hear the frustration of many who want the alternative, the proposals that will bring us up to prosperity, stability and full employment. Then we think about the fate of such proposals when they ARE put forward – even the most well-constructed, and perhaps especially those. They become targets. Opponents minimize the problem of debt, for which they have no answer. They then make a game of deriding and ridiculing. . 

Steve’s and other workable proposals (e.g., those reversing the madness of austerity, go directly to the heart of the matter. [See short forms of Steve’s debt jubilee, property income limited leverage (PILL), and jubilee shares proposals on the Steve Keen page.]  But that focus is quickly turned from the need to do something about the debt to the supposed dangers, unworkability or immorality of the alternatives.

The opposition is not well armed by logic or by actual evidence, but it has the media presence, the institutional standing and the intense self-interest to mount a vigorous assault. If simply ignoring the proposal does not seem to work, the assault commences. Their critical economists are well within their comfort zone – the hypothetical. Since proposals are just that – proposed – there is no track record. One can claim damage or disaster without fear of contradiction by evidence, so long as it is in the future.

This kind of marginalization works well. Proposals are thought to have failed, in the public eye, not because they didn’t work, but because they were never tried and got carried away down the media stream.

The problem is the debt. Household debt, sovereign debt, debt-fueled bubbles in stocks and real estate. No matter how tempting – and necessary at some level –  to have concrete proposals, there will be no action until there is widespread appreciation that the debt cannot be carried and has to be dealt with directly. The enormity has to be recognized. The problem is big, and cannot be dealt with effectively without big solutions.

The public doesn't get it, even in those nations most wracked by the dynamics of debt, being betrayed by their elected officials. The elected officials don’t get it, being persuaded by their need for deep pocket campaign contributions and by the assurances of the mandarins of orthodox economics. The orthodox academics don’t get it, purveying demonstrable fallacies about money, credit, banking and debt year after year, apparently by dint of inertial.

But banks and businesses get it. Banks know they are floating on the largess of their captured regulators and captured central banks. They are floating only just above the surface, since unless they can offload their bad debt to central banks, or squeeze blood out of stones, they are still deep in the swamp. Corporations get it. They use low rates to trade equity for debt in the form of buybacks, or to keep ostensible returns high by borrowing to issue dividends, or by making the balance sheet look good by trading high rate debt for low-rate. Small businesses get it. They have enough debt already. They use debt to invest, not play financial games Because demand from debt-burdened households in the real economy is sluggish and faltering, there is no prospect of profit, so why invest? Why borrow?

Yes, something needs to be done. But until the reality of the debt – its unprecedented size and its growth – is recognized, nothing will happen. It does not matter how clever or targeted the solution offered. Yes, the debt looms over us, but we do not see it. Yes, it will apparently be allowed to crash again, to very uncertain and dangerous consequence. But moving the focus of policy discussion off the failed policies and onto proposed policies will not be effective until that basic understanding comes clear to people, their elected leaders and the discipline of economics.

The problem is the debt.