Monday, April 28, 2008

Blithely Giving Away Other People's Money

Let’s say you want to redo your home’s landscaping. You get a loan for $10,000 on your equity, the bank gives you that $10,000 of its money, and you spend the bank’s money freely. But now you have loan payments on the bank’s money that you have received and spent. That’s no fun. In fact, it is cutting deeply into your spendable income each month. You really don’t want to pay back the loan.

That’s where I come in. I, as a supposedly caring, thoughtful third party, step in and feel your pain. Wow! It IS tough to make those loan payments! Then, in a grand way, I boldly declare that in a spirit of jubilee, your debt should just be forgiven. You should be able to walk away with someone else’s money, and that would be the fair and just—and most definitely CHRISTIAN—thing to do.

It’s easy for me to make the declaration. I didn’t loan you the landscaping money. It’s no skin off my nose if you never pay back your debt. But I can get on my soap box and play my violin for you—a very mournful tune about how onerous it is for you to return someone else’s money. I can really schmaltz it up and make the lender look like a real jerk for not just giving you its money outright. It’s great fun for me, redistributing other people’s money at no personal cost. And when all is said and done, I can feel so self-righteous for helping my neighbor stiff the lender.

Somehow, I think that scenario isn’t exactly what God intended for the whole jubilee arrangement. For one thing, I can choose for myself to be beneficent and generous, forgiving debts of people who have borrowed from me. I can give away my own assets whatever way I choose. But when it comes to me somehow trying to be beneficent with your assets—without your agreement and at no cost to me—then the concept has gone horribly awry.

Forced redistribution of wealth

This “give away someone else’s money” scenario is what comes to mind in the shallow and oversimplified advocacy of the Presbyterian Church (U.S.A.) Washington Office concerning forgiveness of debt to impoverished nations. Here’s how the recent “Witness in Washington” article reads, in part:

Today, the world’s most impoverished countries spend more than $100 million each day in debt payments to wealthy governments and financial institutions like the World Bank and IMF. In countries where the majority of the population lives on less than $1 per day, this money should be spent on clean water, basic health care, and education, not sent to the world’s wealthiest financial institutions.

Note the simplistic shading: The lending governments and institutions are not at all praised for reaching out with vital loans as strategic infusions of capital to raise the economic welfare of the most impoverished countries. These lending countries and institutions took their own money and put it in the hands of governments that needed it to improve their countries. It wasn’t an outright gift; it was a loan.

Such capital for the impoverished countries ought to have benefited the people and raised revenue that would have allowed for debt repayment. However, in many cases, the money was used by national leaders to line their own pockets, or squandered in unwise and often larcenous ways.

But who is subtly made to be the villains in this brief description? The lenders, described only as “wealthy governments” and “the world’s wealthiest financial institutions.” That these entities simply expect to receive their loaned money back, as agreed upon prior to the loan (and sometimes under new agreements even more beneficial to the borrower) is somehow deemed bad.

The Washington Office’s implied message is that these groups should just give away the money that the poor countries had borrowed and still owed in return. Presbyterians, it appears, are being called upon to shame prudent governments and international banks into subsidizing the corrupt and imprudent juntas of the world that have ripped off their own people and now hope to rip off the lending banks and governments.

I don’t think that’s as good an idea as the Washington Office makes it out to be. The forced redistribution of wealth is a much more socialist or communist idea than it is capitalist. Besides it being just flat out unjust to confiscate one group’s capital to give to another, it doesn’t work. Socialism is one of the best ways not to even out wealth equitably, but to eliminate it altogether. It rewards sloth and corruption, and it harshly penalizes initiative and risk-taking.

Let’s say I have a little money to lend. Maybe I’d like to help out with small loans to budding businesspeople in terribly poor countries. I can loan a widow $100 to buy a sewing machine, and then she can work, feed her family, educate her children, and slowly pay back the loan. She has pride because the loan allows her to make something of her life. Soon she is hiring other sewers and building her business, helping others as she does.

Let’s say I do that 100 times over with $10,000. The small interest and repayments I receive, allow me to continue doing the micro credit over and over again.

But what if there are parties like the Washington Office who cast aspersions on my even having that $10,000 to loan in micro credit? What if I must be a filthy exploiter to have accumulated that capital in the first place, and the best way to deal with creeps like me is to take away that money and give it to the poor? So I get some onerous tax slapped on me, and now my $10,000 is in the government’s hands, from which maybe $3,000 emerges eventually, given to some corrupt Third-World bureaucracy that basically misspends it. Not much help there.

Or what if, rather than lending my $10,000 to individuals seeking to raise themselves out of poverty, I just loan it to their government. Then some corrupt official uses it for a down payment on his second Mercedes, while his people starve. But then, to make things worse, some third party steps in and says it is horribly wrong for me to have money to lend and for the impoverished government to have to pay it back. What if that third party declares that the corrupt government’s debt to me is cancelled? I’m out my well-intentioned $10,000. The corrupt government official’s kid is driving a Mercedes and has a big grin on his face. And the poor seamstress has no way to work and feed her family.

Or, let's say that things like this happen and I still somehow have another $10,000 lying around. Do you think I will be favorably disposed toward lending it to impoverished people overseas? I mean, I’ve lent $10,000 before, and the government just canceled the debt, in effect giving away my money. Or I’ve seen my money sent off into corrupt hands and it never gets to the truly needy. I’ll not want either of those things to happen again, so I’ll probably not use that $10,000 again in the same ways.

Bad policy will have been terribly effective in halting the exact behavior that could have brought some benefit. And that bad policy is what our Washington Office appears to be advocating, without seriously wrestling with the knotty consequences of its advocacy.

Preliminary questions

If the Washington Office is going to blithely ask us to lobby our government to give away previously loaned money, it seems it should first answer some basic questions for us:
  1. Whose money is being given away with loan forgiveness? Is it our collective money as a nation, or is it private or semi-private capital that is being made a gift rather than a loan?
  2. If it is government money, what consequences will that have on further loan availability? Or what will the government not be able to do, because of the loss of money it would have recovered from its loans?
  3. Where would the money come from to replace the forgiven repayments?
  4. If it is private money, how can the government forgive someone else’s loans? Can it say, “Well, that party once owed you money according to a valid contract, but now we’re saying it doesn’t have to pay, and you’re stuck with uncollectable loans. Tough luck”?
  5. Whose money is being given away if the World Bank forgives loans? Who takes the loss? Whose money is being given away if the International Monetary Fund forgives loans?
  6. When the government arbitrarily determines that some loans don’t need to be repaid, what effect would that have on the availability of loan capital for future loans? Why would lenders make further loans if they could lose the whole amount by some governmental decree?
  7. Won’t capital become unavailable to economies that desperately need an infusion of capital, and couldn’t that be disastrous for the impoverished countries?
  8. Wouldn’t the precariousness of loans that could be suddenly declared uncollectable force up the interest rate incredibly on any such future loans? With high risk comes the expectation of high returns.

The Washington Office rationale is entirely incomplete. It seems to go like this: “Some countries and institutions are wealthy. That’s bad. Some countries are very poor. It’s our fault. Therefore, we should just give away to the poor countries money that we originally had loaned them. There’s something in the Bible about “jubilee,” and therefore the catchy name is good for convincing everyone that this should be a no-brainer to support. Quick, call your congressperson about this issue.”

I think we Presbyterians deserve more and better rationales than this. There are some very fine arguments for and against specific debt forgiveness. I would think that some situations would indicate debt forgiveness as the wisest and most humanitarian way forward. But I would also guess that in many situations, debt forgiveness would reward kleptomanic governments, hurt the economic future of the poorest of the poor, and cripple further efforts to extend investments and aid in that economic situation.

It insults Presbyterans to produce the overly simplistic argument that “Golly, there are poor people and wealthy countries, so let’s confiscate the wealth and give it to the poor countries!” The Washington Office ought to give us more meat in their rationales, and far fewer blithe directions that fail to evidence careful analysis and prudent thought.