Debt forgiveness, ancient Greece and peak energy
In the 6th century BC, the Athenians gave extraordinary powers to a man to make the necessary reforms that would deliver Athens from economic stagnation and the gradual enslavement of the lower classes. It is believed that this man, Solon, forced the forgiveness of debts, forbade the pledging of oneself or members of one’s family as security for loans, and freed all Athenians who had been enslaved through such promises. He also abrogated the severe code instituted by Dracon (hence the term draconian) and replaced it with more humane laws. After decreeing that his reforms would remain in place for 10 years, Solon went abroad for a year-long vacation – presumably so that no one could try to change their minds about what he had done.
Today, in circumstances Solon would acknowledge, the case for widespread debt forgiveness has only recently been made. Stephen Roach, a longtime Wall Street economist, has uses lenders bear considerable pain for the bad loans they made during the previous boom. The problem, as he points out, is that such a pardon would require federal leadership, which means members of the US Congress would have to penalize one of their most lucrative sources of campaign donations – the financial industry. The Athenian assembly had similar problems, so it chose to give Solon autocratic powers.
Roach acknowledges that many loans, especially those made to consumers, will not be repaid. An orderly process of debt cancellation would spread the pain more evenly, speed up the process of deleveraging that depresses economic activity, and provide more certainty of outcome than simply letting people default. Keep in mind that under new US bankruptcy laws, it is much more difficult for consumers to pay off their debts, especially student debts. Doing nothing will guarantee us a generation of debt-laden graduate students who will be little better off than the indebted slaves of Athens whom Solon had to save from a life of despair.
Debt cancellation is of particular interest to those like me who are concerned that society is approaching or has passed peak net energy. (For a fuller discussion on this, please see my article Does the net energy peak?) To briefly recap, net energy is what is left for the non-energy sectors of society after subtracting the energy needed to extract, transport, refine and deliver energy to where it is needed. We could continue to extract more and more energy on a raw Earth basis for some time to come. But as the remaining energy resources become increasingly difficult to obtain, we will expend more and more energy just to obtain them, leaving less and less energy for the rest of society. The day that net energy begins to decline will be a critical turning point, and it will occur long before gross energy extractions peak.
What is the relationship with the debt? Well, energy is the driving force of the economy. Nothing gets done without it. Cheap energy makes modern economies hum. Expensive (and therefore scarce) energy makes them sputter. When they collapse, loans made when energy was cheap and the economy was growing become harder to repay. In fact, these loans are based on the idea of perpetual economic growth which is simply not possible without an ever-increasing energy supply. That’s two impossibilities in one sentence. If the necessary growth doesn’t happen–and it’s not happening now–the economic activity required to generate the flow of funds needed to repay each loan will not be available. All in all, the loans granted by the modern banking system are only a bet on future growth.
The sooner we can admit that a large portion of the loans currently outstanding will never be repaid in full and move on, the sooner we can invest in the steps necessary to prepare for a future marked by limited resources. However, if no recognition is received, we risk facing long-term stagnation that will deprive society of the capital it needs to make important investments in a more sustainable world.
What we need now more than ever is a leader or a group of leaders who can tell us honestly and without concern what is wrong and what we need to do – and not pander to all-powerful financial interests. A few upper class voices are now saying that people at the top will have to make sacrifices for the good of society. Will a Solon for our time or multiple Solons around the world emerge – preferably not dictators like Solon was asked to be? Will they be able to exploit the growing awareness that debt must be reduced and that those who have lent too much must bear some responsibility and losses? Will there be a broad public consensus behind them that will allow them to act?
Solon began his great work when Athens was on the brink of revolution. Will we too come to the brink before the modern Solons begin their work?
By. Kurt Cobb
Source: resource overview