This is a very important piece from Robert Kuttner at the American Prospect. I want to quote the whole thing, but that wouldn’t be a quote. Here’s an excerpt:
Economic history is filled with bouts of financial euphoria followed by painful mornings after. When nations awake saddled with debts incurred to finance wars, episodes of failed speculation, or grand projects that haven’t paid off, they have two choices. Either the creditor class prevails at the expense of everyone else, or governments find ways to reduce the debt burden so that the productive power of the economy can recover.
Creditors—the rentier class in classic usage—are usually the wealthy and the powerful. Debtors, almost by definition, have scant resources or power. The “money issue” of 19th-century America, about whether credit would be cheap or dear, was also a battle between growth and austerity.
The creditor class views anything less than full debt repayment as the collapse of economic civilization. In fact, however, debts are often not paid in full. In the 20th century, speculators lost fortunes as dozens of nations defaulted on debts. Several 19th-century U.S. states and municipalities defaulted. Losers in wars and revolutions seldom pay debts. (Those czarist bonds have no value except on eBay.) The Brady Plan of the late 1980s paid bondholders of defaulting Third World debtors at about 70 cents on the dollar so that economic growth could resume.
Sometimes, debts simply cannot be paid. That’s why debtors’ prison was a ruinous idea (except as a deterrent). The real issue is how to restructure debt when it becomes impossible to repay. This is not just a struggle between haves and have-nots but between the claims of the past and the potential of the future.
And here’s the whole thing; link via Elias Isquith at the League of Ordinary Gentlemen, who writes:
Another way to put this is that working towards increasing employment and reducing private debt is not in the rational self-interest of people who, for the time being, find themselves doing quite all right in this poor economy. Kuttner focuses here on those who are against shifting the balance of power between debtors and creditors. But the same dynamic is true regarding fiscal policy.
I’m most certainly not an economist, so I’m inclined to look at these issues largely through a political lens. And that means taking into account the dynamics of power. Doing that, it’s not so curious, the continued apathy on the part of the country’s elites towards reducing unemployment. After all, a market where everyone desperately wants a job is one in which employers have supreme leverage. Provided you’re not a retailer suffering from the lack of demand in the population, maintaining this economic status quo is a great way to control the rise of wages.
Read Isquith’s full post as well.