Steve Keen’s debt jubilee.

 

The main explanation for support of the debt jubilee is the negative emotional overtones of the word “debt”: bit like the way in which Germans have an aversion to debt largely because the word debt in German (schuld) also means “guilt”.

In contrast to emotion, Steve Keen in the second chapter of a forthcoming book of his does actually provide some REASONS for a debt jubilee, the main one being that variations in the amount of private sector debt cause gyrations in aggregate demand: i.e. they tend to exacerbate booms and busts. Thus his solution for the latter problem is a more stringent control of the amount of private sector debt.

However, the latter gyrations in demand could easily be dealt with if governments and central banks got their act together and implemented the right amount of stimulus at the right time. And that, at least in theory, is a vastly simpler solution to the problem than trying to control how much mortgage each household is allowed and how much every firm is allowed to borrow.

The reason governments and central banks failed to implement the right amount of stimulus at the right time in the aftermath of the 2007/8 bank crisis was that they were overly influenced by a large number of economic illiterates in high places who advocated limits to the amount of stimulus. The latter illiterates / idiots included a clutch of economists at Harvard: Kenneth Rogoff, Carmen Reinhart and Alberto Alesina. Plus the IMF and OECD had no idea whether they were coming or going on this issue: Google IMF, OECD and “Billyblog” for a selection of articles by Bill Mitchell on IMF and OECD incompetence.
 

Conclusion.

Implementing the right amount of stimulus at the right time strikes me as a much simpler solution to the problem than trying to control the amount of debt incurred by households and firms.