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ECONOMICS & POLITICS 101 (2 of 2)

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August 8

In the book titled Debt: the First 5,000 Years, published last year, David Graeber writes of his concern with the statement by an acquaintance that "one has to pay one's debts." Graeber replied:

Well, I know that sounds like common sense, but the funny thing is that's not how loans are actually supposed to work. Financial institutions are supposed to be ways of directing resources toward profitable investments. If a bank were guaranteed to get its money back, plus interest, no matter what it did, the whole system wouldn't work.

Graeber describes risk as a part of lending, a part of which is the lender making judgments. Graeber is no fan of risk free lending and common people having to pay for the mistakes of foolish moneylenders.

August 10

It would be ideal that governments not become heavily indebted — except in national emergencies such as World War II, when the United States had bond drives that put the government in debt to its own citizens. But politicians are weak creatures. And moneylenders contribute to that weakness in the hope of making a profit. Profit is not intended here as a dirty word, but it should be acknowledged that these profit seekers are taking a risk that they should be aware of. And some of us aren't going to shed tears if the moneylenders fail to make a profit or if they lose money they shouldn't have lent in the first place.

Politicians in power in Europe have been concerned with the happiness of moneylenders. They believe in the importance of lending to an extent that a new phrase has been in circulation since the 2008 financial crisis: "Too big to fail." The US Treasury Secretary, Timothy Geithner, appears to be with politicians in giving importance to big money being able to make loans. What happened to small start-ups using savings and borrowing money from relatives and friends? How about corporations investing their own money in enterprises and cities using money from collection of local revenues? And people, of course, should be willing to pay in taxes for whatever they want their government to do.

I don't know how sound of a scholar David Graeber is. He is an anthropologist, not a historian or a professional economist. But historians and economists can and should draw from anthropologists.

Graeber writes of debt cancellations: "...again and again, in Sumerian and later Babylonian and Syrian records, and always with the same theme: the restoration of 'justice and equity.'" Graeber writes of the ancient Hebrew Law of Jubilee, "a law that stipulated that all debts would be automatically cancelled 'in the Sabbath year' (that is, after seven years had passed), and that all who languished in bondage owing to such debts would be released." Freedom in the Bible, writes Graeber, "came to refer to release from the effects of debt." (Graeber, pp 82, 216)

August 16

The Washington Post has an article today about a woman in Germany named Geithner who dislikes being lectured by US Treasury Secretary Timothy Geithner. The article reminds us that although inflation helps to pay off debt (by reducing value going to moneylenders) it also reduces people's savings. Germans are still living with their great inflation of the early 1920s when people with savings were wiped out. Ms Geithner asks why the US, among others, is "pushing Germany to use its hard-saved money on bailing out other, less prudent countries?" The article claims that the Geithners in Germany " fret about inflation" and "tut-tut about what they see as America's rat-race culture."

August 21

Mitt Romney has been telling the public that he will unleash the job creators, and he accuses President Obama of inhibiting private investment. What people do with their money is, of course, important. In economic downturns they put it in a safe place somewhere. Today, Reuters reports that the JP Morgan Company, an asset management group, is buying a stake in a Brazilian fashion retailer, Dafiti. It's a reasonable move for the US based company. Investing is certainly international, and Dafiti appears to have good growth protential. Obama, meanwhile, expresses interest in higher taxes for those who have money in great abundance. He thinks it could help job creation in the US such as government investment in infrastructure. Republicans, on the other hand, have as one of their campaign slogans the reduction of government.