I dis­cuss a Mod­ern Debt Jubilee On Macro’n’Cheese today, and this is a quick expla­na­tion of how it could be done.

Jubilees were com­mon in antiq­ui­ty. The Lord’s Prayer did not orig­i­nal­ly say “And for­give us our sins, as we have for­giv­en those who sin against us”, but “And for­give us our debts, as we also have for­giv­en our debtors”. But an old-fash­ioned Jubilee would reward those who gam­bled with bor­rowed mon­ey, and thus effec­tive­ly penalise those who did not. It would also effec­tive­ly bank­rupt the banks, since their assets—our debts—would fall, while their liabilities—our deposits—would remain con­stant.

I’ve had some tough inter­views over the years (such as the BBC HARDtalk! inter­view ear­li­er this year with Stephen Sack­ur), but I’d have to cred­it the stu­dent inter­view­ers at the Uni­ver­si­ty of Ams­ter­dam’s Room for Dis­cus­sion event with giv­ing me the tough­est, well-informed grilling my ideas have had in pub­lic. I’m fol­low­ing up lat­er today with a keynote speech at the Dutch Rethink­ing Eco­nom­ics event tonight, and I’ll post that here lat­er this week.

This was my keynote speech at the French Asso­ci­a­tion for Polit­i­cal Econ­o­my (AFEP) annu­al con­fer­ence in Mul­house, France (the oth­er keynote was given–in French–by my good friend Marc Lavoie, who is now based at the Uni­ver­si­ty de Paris 13). In this pre­sen­ta­tion, I:

• Dis­par­age the “sec­u­lar stag­na­tion” expla­na­tion that Lar­ry Sum­mers has regur­gi­tat­ed for the tepid lev­el of eco­nom­ic growth today. As did Hansen in the 1930s, Sum­mers pon­ders “why growth would remain anaemic in the absence of major finan­cial con­cerns?”, when finan­cial con­cerns are obvi­ous if you under­stand cred­it;

Using the dynam­ics of credit–which most oth­er econ­o­mists ignore–I explain why Japan, the USA and UK are among the “Walk­ing Dead of Debt” and why Chi­na, Cana­da, Aus­tralia and South Korea are on their way to join­ing the Debt Zom­bies. This pre­sen­ta­tion is based on work I’m doing for a new 25000 word book for Poli­ty Press enti­tled “Can we avoid anoth­er finan­cial cri­sis?”, which should be pub­lished lat­er this year.

For decades, some of the most impor­tant data about mar­ket economies was sim­ply unavail­able: the lev­el of pri­vate debt. You could get gov­ern­ment debt data eas­i­ly, but (with the out­stand­ing excep­tion of the USA—and also Aus­tralia) it was hard to come by.

That has been reme­died by the Bank of Inter­na­tion­al Set­tle­ments, which now pub­lish­es a quar­ter­ly series on debt—government & private—for over 40 coun­tries. This data lets me iden­ti­fy the sev­en coun­tries that, on my analy­sis, are most like­ly to suf­fer a debt cri­sis in the next 1–3 years. They are, in order of like­ly sever­i­ty: Chi­na, Aus­tralia, Swe­den, Hong Kong (though it might deserve first billing), Korea, Cana­da, and Nor­way.

The Pri­vate Debt Project (this web­site will become active as of Decem­ber 2015) invites pro­pos­als for arti­cles, papers, and research notes relat­ed to the study of pri­vate debt and its rela­tion­ship to eco­nom­ic growth and finan­cial sta­bil­i­ty. The Project will pro­vide hon­o­rar­i­um for all pub­lished work. In cas­es involv­ing papers with orig­i­nal research, it will also con­sid­er small research grants to help cov­er the cost of the research.

Com­mis­sioned arti­cles, papers, and research notes will be pub­lished on The Pri­vate Debt Project’s on-line jour­nal and will be dis­sem­i­nat­ed to a wide audi­ence of aca­d­e­mics, pol­i­cy experts, gov­ern­ment offi­cials, investors, and busi­ness lead­ers.

In a (for me!) brief pre­sen­ta­tion with 7 slides, I explain why ris­ing pri­vate debt nec­es­sar­i­ly caus­es increased inequal­i­ty, and leads to an eco­nom­ic cri­sis when the rate of growth of debt exceeds the rate of decline of wages as a share of nation­al income. Cru­cial­ly, the actu­al break­down is pre­ced­ed by an appar­ent peri­od of tranquility–a “Great Mod­er­a­tion”.

This was a short talk to a pub­lic audi­ence at ESCP Europe in Paris, which was pre­sent­ed in Eng­lish and also trans­lat­ed into French by Gael Giraud, Chief Econ­o­mist of the French Devel­op­ment Agency and the trans­la­tor of Debunk­ing Eco­nom­ics (so the sound­track is in both Eng­lish and French).

There are many ways that you can divide the world into two groups. Men and women, for example—with the for­mer being about 50.2% of the pop­u­la­tion and the lat­ter 49.8%. Or those that like math and those that don’t—where there are no accu­rate fig­ures, but I’d haz­ard a guess at a 10% to 90% split.

Paul Krug­man has pub­lished a trio of blog posts on the issue of debt in the last week: “Debt Is Mon­ey We Owe To Our­selves” (Feb­ru­ary 6^th at 7.30am), “Debt: A Thought Exper­i­ment” (same day at 5.30pm), and final­ly “Nobody Under­stands Debt” (Feb­ru­ary 9^th in an Op Ed).

There is one tru­ly remark­able thing about all three arti­cles: not one of them con­tains the word “Bank”.

Now you may think it’s ridicu­lous that an econ­o­mist could dis­cuss the macro­eco­nom­ics of debt, not once but three times, and nev­er even con­sid­er the role of banks. But Krug­man would tell you whyyou don’t need to con­sid­er banks when talk­ing about debt, and call you a “Bank­ing Mys­tic” if you per­sist­ed.

Anoth­er elec­tion is on in Aus­tralia, and the top­ic du jour – the polit­i­cal top­ic du cen­tu­ry it seems – is that, hor­ror of hor­rors, the government’s bud­get next year will be in deficit to the tune of $30 bil­lion! It’s a scan­dal! Our debt is bal­loon­ing! And it’s all Labor’s fault! Why, all you have to do is look at the respon­si­ble Howard peri­od – falling debt – and com­pare it to the irre­spon­si­ble Labor peri­od – ris­ing debt – and you know who to vote for, don’t you?

Fig­ure 1: From the respon­si­ble Howard to the irre­spon­si­ble Rudd?