Debt jubilee: will our debts be written off?

What is a jubilee?

It is literally a trumpet, blasting out the news that it’s time to forgive all debt to protect the long-term interests of the whole community and polity. In the Jewish and Christian traditions, a jubilee (the word comes from “yobel”, the Hebrew for “trumpet”) was blown every 50 years to signal the Year of the Lord, in which all personal debts were cancelled.

According to the Mosaic Law – ie, the law given to Moses by God as set out in the Pentateuch or Written Torah – in each jubilee year each household should recover its absent members; foreclosed land be returned to its former owners; indentured slaves set free and debts written off. For the details of Mosaic property rights and debt, see Leviticus 25.

Did this actually happen?

Yes. Until recently, some historians doubted a debt jubilee would have been possible in practice, or that such proclamations could have been enforced, says Michael Hudson, a US academic and author, in The Washington Post. But research by Assyriologists has found that “from the beginning of recorded history in the Near East, it was normal for new rulers to proclaim a debt amnesty upon taking the throne”. Instead of blowing a trumpet, the ruler “raised the sacred torch” to signal the amnesty.

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Such jubilees were not utopian or altruistic: they were a clear-sighted recognition that to maintain social order and political stability – and protect the long-term sustainability of economic life, commerce and peaceful rule – it is necessary to stop credit systems degenerating into the enslavement of debtors by their creditors. That way lie anarchy and violence.

When was the first jubilee?

According to anthropologist David Graeber, the author of Debt: The First 5,000 Years, the first recorded jubilee declaration was made in 2,400 BC, when the Sumerian king Enmetena declared a general debt cancellation in his kingdom. What’s more, his declaration marks the first time that the word “freedom” – here, the freedom of formerly indebted slaves – appears in any political document.

Indeed, the first word for freedom known in any language is the Sumerian “amargi” meaning “return to mother”, presumably because enslaved children in particular were allowed to return home. In other words, a debt jubilee is a recognition that economic life must be socially rooted if it is to be sustainable. If debts can’t be paid off, they won’t be – and it might be better for everyone if that can be addressed peacefully.

Why are you telling me all this?

Because the idea of a debt jubilee, which enjoyed a flurry of interest after the great financial crisis of the late 2000s, is getting renewed attention given the current global emergency. Back then, versions of a jubilee were backed by orthodox voices (such as Morgan Stanley’s influential chief economic Stephen Roach) as well as radical ones.

Roach argued for a grand out-of-court settlement between bond investors, banks and consumer groups – what he called a “great haircut” – to fix the underlying problem of excessive debt and jump-start the economy. Obviously, the idea is resurfacing now because the world is facing two simultaneous and overlapping crises, says the US legal scholar Katharina Pistor in The Guardian – namely, the coronavirus pandemic and the “economic threat it poses to our debt-fuelled economy”.

What is to be done?

We urgently need measures that keep financial markets working and protect businesses, conceivably in the form of government write-offs of corporate bonds bought with printed money to get through the crisis. But we also need debt relief, especially for households at the lower end of the income and wealth spectrum, says Pistor. Without that, the world faces a prolonged spiral of depression driven by corporate collapses and rapidly falling demand for goods and service. “To treat the economic fallout of coronavirus, governments should directly assume the debt of high-risk households,” she argues. Trying to get lenders to soften the terms of existing loans, as the US government did after the 2008 crisis, for example, “will be too slow to meet the current challenge”.

What’s the case in favour?

The same as it was in Sumeria and Babylonia: pragmatism and long-term stability. What the economic and social consequences of the current emergency will be are unknowable, but in a crashing global economy, “any demand that newly massive debts be paid to a financial class that has already absorbed most of the wealth gained since 2008 will only split our society further”, says Hudson.

Or we could take a lesson from 20th century history. After World War I, war debts and reparations bankrupted and further traumatised Germany, contributing to the global financial collapse of 1929-1931, the rise of fascism and ensuing horrors. By contrast, Germany’s “modern debt jubilee” of 1948, when the Allied Powers replaced the reichsmark with the Deutsche mark, wiped out 90% of government and private debt and paved the way for West Germany’s economic miracle.

What’s the case against?

Debts must be repaid, or credit would dry up and commerce would be impossible. Writing it off encourages future recklessness. And there’s no guarantee writing off debts would stimulate a recovery, since every liability is also an asset: every extra pound saved on debt repayments is also a pound cut off a lender’s capital or net worth, draining future confidence and investment. In addition, any country instituting a jubilee unilaterally risks capital flight.

For all these reasons, a debt jubilee would appear unthinkable – were it not for the fact that the current pandemic and economic meltdown involves all kinds of previously unthinkable state actions being announced every other day.