Friday, February 13, 2015

Debt and its Discontents

In a previous post I analyzed what the new leftist parties (or groups) dissatisfied with the system had in common with the old ones, and I warned (threatened?) to devote a separate one to what I found as the common core of their proposals, the renegotiation/ forgiveness of debt. For the ones already in power (the Greek Syriza party) it had gained even more urgency, although they have had to water down their original proposals quite a bit, as I predicted, from “end austerity right now and those uptight Germans can stick their Greek IOU’s up their arse, ‘cuz we are not paying them, the euro be damned” to a more humble “let’s soften the austerity measures a teeny weeny bit, please, and try to extend the debt maturation period, after which we will pay, of course, all of it, as the responsible European members we are and always have been”. Which is all well and good, and par for the course, we wouldn’t expect anything different from any government, would we? (the fact they are behaving so “responsibly” is already a mild disappointment).

More than in governments behaving like governments (old or new) are wont to do, I’m interested in the claims of their ideological affiliates, and the justification of the current state of affairs it lets us guess.
The first interesting thing the Greek (and likely, the upcoming Spanish one) brouhaha tells us is the complex justification (usually cloaked as a most straightforward one) of the opponents of debt restructuring/ alleviation/ goddamn forgiveness. It takes the outward structure, in Paul Krugman’s words, of a “morality play” in which the debtors are already morally suspect: instead of working like the diligent ants (that happened to lend them the money, having saved wisely), they overspent, lived the great life, used the money to feed their dissolute mores and nefarious vices, and now it is only just and fair that they are made to pay up to the last penny they slothfully and gluttonously enjoyed, even if that means condemning them to the direst poverty. It is a way of self-serving moral “reasoning” with a long tradition in the West, a fixture of which was not so long ago the debtors prison where people unable to pay their debts would languish, even if that meant (in patriarchal times when there was a single breadwinner per household) unavoidable destitution for their families (and the further inability to ever pay, as there aren’t many ways of earning a decent income in a prison, debtor’s or otherwise, so it was just a punitive measure without any expectation of restitution for the original lender other than preventing the “moral hazard” that deficit scolds like so much to use in their arguments today). We will have more to say about the merit of such arguments, but first let us review how much force the “everybody should pay back their debts, no matter what” injunction has, as seen from every one of the three main moral traditions:

·         Utilitarianism: from a utilitarian point of view, the thing is quite simple. If the debtor can derive more satisfaction from the money he received than the creditor (seems a quite modest expectation, given the latter parted from it voluntarily), “the greatest happiness for the greatest number” is reached if the debtor keeps it, and never pays back, and the injunction loses all its force. Now some modern psychology would remind us about human rationality being biased towards loss aversion, which makes us suffer from a loss more than what we would enjoy the equivalent gain, so even if the debtor enjoys the money more than the creditor, the suffering he experiences for not receiving it back may well compensate even that greater amount of enjoyment… I’m not fully convinced (as the experiments to identify, let alone measure, that loss aversion are quite contrived), but the proponents of debt repayment in any case may retort that I’m misconstruing the utilitarian argument. They may counter argue that lending is a socially beneficial social practice, so a greater collective happiness is achieved if people with higher propensity to save can offload their savings in people with higher propensity to spend presently, and that offload would be severely curtailed if nobody ever paid back adducing they felt they contributed to the greater social welfare by doing so. Still unconvinced, as the patent inability of a lot of Countries (Argentina during most of her history, Greece now, 90% of African nations since independence) to ever pay back their huge debts has never curtailed the appetite of foreign lenders to keep on happily sending checks to them (checks they have been even more happy to cash and the spend in oh so fungible goods, rather than invest to improve their lot and some day, long in the future as it may be, consider paying back any of it)…

·         Deontology: the deontological argument is a bit more contrived, specially since there is an implicit promise when accepting a loan to pay it back in the agreed schedule, and we know how we poor deontologists get all jittery about breaking promises (telling a potential assassin where his intended victim is hiding? Aw, shucks, such is life… but, lying to him to spare the victim’s life? No way Jose! You can not wish that as a universal rule without contradicting yourself –just kidding). Of course, the rebus sic stantibus clause can come into our help here: we made the implicit promise to pay back assuming things would stand more or less the same (or change in our favor, as the real implicit assumption in a loan is that the debtor will improve his life’s lot, may be even investing the received cash, so he will in the future be able to pay), which they are typically not. Another way of (deontologically) looking at it is asking: can we will the lack of payment of debts to be a universal law? Wouldn’t it contradict the purpose of the social practice of lending, causing it to cease? Well, if we are serious about this whole deontological thing, we have to admit it does, to the hilt. There is still a (tiny) sliver of a way out, and it comes from the fact that deontology prescribes everybody to be charitable. So as debtors we are forced to recognize the moral imperative of paying back our debts. But as creditors we are equally forced to forgive our debtor’s amount, or at least to diminish it as much as possible, specially if not doing so would impose a great burden on him, incompatible with his dignity as human (remember, a rational being that has dignity instead of price… which means you can not put a monetary value on that dignity). Just remember that second part every time somebody gets all Kantian on you about the need for austerity and for everybody “living within their means” (funny that everybody that resorts to that sentence is usually thinking in means substantially lower than their own…)

·         Virtue ethics: no discussion here, in all accounts of the right character that dictates what virtuous behavior consists in, frugality, not depending on others and trustworthiness are outstanding features, all of them incompatible with asking anybody anything (least of all something as… mundane as money). A virtue ethicist (which shouldn’t be mistaken with a virtuous ethicist, much as she would love to be) would never go in debt in the first place, and would strive to pay back more and sooner than initially stipulated as a matter of principle.

Now, funnily enough, most economists that contend that debts have always to be paid are firmly entrenched in a very utilitarian worldview. All of their epistemic perspective (maximization of a ghostly dimension called “welfare” when not directly “utility” as the sole explanatory variable of human behavior) is steeped up in that tradition, so one would expect them to be the most lenient about the whole thing, with deontologist somewhat more stern and virtue ethicists (if there is any outside of Rosalind Hursthouse, which I sometimes doubt) most opposed to it. But the two latter are in principle opposed to the whole economicist mess we are in, so it is not likely you are going to hear from many of them.

However, I hope I have at least questioned the immediate correctness of the injunction “always pay your debt, no matter what”. Which is a good thing, because specially when you look at the second part of it, things start to get much more shady. Regardless of the utilitarian perspective which pervades their opinions, the proponents of that idea tend to appeal, as we mentioned, to the concept of justice, understood as giving everyone what is due to him (“what is due” is a synonym of “what is owed”, and isn’t the very definition of debt that it is owed to the creditor?). But if we look more closely at the term, we quickly recognize it comes from the Latin iustitia, which in turn is the word they devised to translate the Greek dikaiosyné (I love old Greek so much I can not avoid transcribing it in its original Greek characters: dikaiosunh  -although not sure if the omicron after the second iota should not be an omega… whatever, it’s where the “dicy” in “theodicy” comes from), which originated in a society where money had not yet been invented to keep track of who owed what to whom. So their concept of justice had more to do with occupying properly one’s place in a very hierarchical society, and discharge honorably the duties the social group had defined for you (see? Virtue ethics and deontology were joined at the hip at birth, one evolved from the other, as the aforementioned Hursthouse and MacIntyre already guessed). But, and here is the important thing ,those duties were reciprocal, and the exemplar for them was hospitality (an absolutely key, defining concept in the Western Mediterranean world between 1200 BC and at least 400 BC): you received in your house a complete stranger and gave him food and shelter because not doing it would be an unpardonable affront to the Gods and the customs of the group, would mark anybody who did it as an outcast and a monster. In exchange, you counted on any stranger (not necessarily the one you originally sheltered) in turn doing the same for you when you were abroad. But for that reciprocity to obtain, and this is what takes us closer to the applicability of ancient notions of justice to debt repayment in the 21st Century: the persons entering in a relationship had to be equals for the concept of justice to apply to it: kings (rather tribal chieftains) lodged with kings, merchants with merchants, herdsmen with herdsmen. It was as unthinkable for a herdsman to ask for the hospitality of a king as it would be for a king to deign to visit the hut of a pauper.

I’ll have more to say about how the strictures of bronze and iron age Greek society have contributed to conform our notion of debt (and what we have conveniently forgotten about it), but I will leave this already long post with a question: where is the equality in Today’s debt relationship? And if there is no equality when constituting the relationship, has the appeal to justice any merit, then?

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