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.

11 Comments:

Blogger Dennis said...

Jim,

I thought this had the flavor of a right wing political rant. You obviously don't like socialism, but what does that have to do with anything? Your comment that loan forgiveness would potentially harm the economic future of the poorest of the poor is hard to believe. I am informed that some poor countries are able to pay only interest on their loans, and even that money could be used to improve the quality of life of the poorest of the poor in those countries. Your comment about the government leader driving a Mercedes is well taken. Of course, citizens are often victimized by their country's leaders, and that includes Americans.

I am not sure what set you off, but I have a few comments. First, Jesus demonstrated a favorable attitude to the poorest of the poor. It seems to me that if we are to follow his example, we too should strive to favor the poor. Second, my understanding is that the Washington office must follow the dictates of the General Assembly. If, in your opinion, they have deviated from decisions of the General Assembly, you should call them to account on that basis.

At least, that is the way I see it now.

Most of your comments could have not seemed out of place in an editorial in the Wall Street Journal.

I am open to persuasion.

Dennis Veith
Ferndale, Washington

4:01 PM, April 29, 2008  
Blogger Jim said...

Dennis,

A "rant," huh? Really? I state a case and illustrate it thoroughly, and that qualifies as a rant?

Might you define a "rant" as an informed article with which you disagree?

Second, I suggest you take more care about making a distinction between overarching principles on the one hand, and prudential judgments about actions on the other.

Yes, Jesus cared about the poor, and so should we. Now, does one jump immediately to ONE and only one conclusion about HOW that care ought to be worked out?

Is giving away someone else's money the ONLY and BEST way to care for the poor? Or might there just be ramifications of such an action that could be both unjust and ineffective, leading to wrong actions and poor results?

Once you decide that the poor need consideration, there is a ton of work remaining to decide clearly what is the best course to take. You apparently assume just one obvious course, when I would suggest that the obvious is not necessarily so obvious.

Third, remember that I also said, "I would think that some situations would indicate debt forgiveness as the wisest and most humanitarian way forward." However, I think you have a long way to go to prove that it would be wise, humanitarian, and effective in most or all cases.

Fourth, before you ask more questions, I'd like some answers to the numbered questions I asked. If we're talking about forgiving debts, just WHOSE money are we talking about giving away? Do you know? Can you tell us? It would be foolish to advocate for something one just doesn't begin to understand. What are the ramifications of advocating for blanket debt forgiveness? You need to know. Let us know what you know or find out, please.

Hey, I saw a hungry guy down by Fairhaven in Bellingham, near Ferndale. You wouldn't mind, would you, if I emptied your bank account to get him set up with food for the next year? It is such sport to be compassionate with someone else's money!

Jim Berkley
Bellevue, WA

7:26 PM, April 29, 2008  
Blogger Michael said...

Oh and by the way, the U.S. government is only able to pay the interest on its own loans. Wouldn't it be Christ-like to forgive that debt as well? Think of what our government could do for "the poorest of the poor" if it were relieved of that burden which now totals $9,339,954,206,898.51 (as of 02:39:23 GMT 30APR08) amounting to $30,733.30 per citizen.

And if the line is forming now, I should add that I am often able to pay no more than the minimum required on my credit card bills. I assure you that my life would be better if that debt were gone.

Let's have a real Jubilee year and cancel all debt averywhere. We can all start fresh tomorrow in utopia.

Just a thought.

7:49 AM, April 30, 2008  
Blogger Michael said...

Michael Neubert
Presbytery of Southeastern Illinois

11:21 AM, May 01, 2008  
Blogger Doug Hagler said...

Tentatively I step again.

I don't have time to read the actual legislation, but the documents from the Office seem to talk about "expanding eligibility", which seems to be what you're proposing - that is, considering on a case-by-case basis who should have debt forgiveness. I could be wrong, but it honestly sounds like the legislation makes it possible to do exactly what you're saying would be best.

We also disagree about socialism (I just like child labor laws, unions, anti-trust laws, minimum wage laws, environmental standards, workplace safety regulations, and other socialist evils too much I guess), but that's beside the point, I think both in your post and in this comment.

Mostly, I want to talk about Kiva microlending. You wisely recommend microlending as a way to make actual concrete improvement in the lives of the world's poor, and I commend that and add my recommendation to yours. www.kiva.org is the website for an organization created here in Sodom (San Francisco to us locals) to make microlending absurdly easy for everyone. If you want to change the lives of the poor, go to this website and read about how to do so. You can even learn about the people you will be helping, and for those concerned, the repayment rate of loans is about 98%, so no icky Jubilees to deal with either.

Working with Kiva will make capitalists like Jim happy, because you are supporting local entrepreneurs, and it will make filthy pinkos like myself happy, because you are helping the poor in ways that pure capitalism never has and never will. If you have $100, or $10,000, through Kiva you can circumvent the kleptomaniacal regimes altogether and ensure that 100% of your money goes to an actual person in need who has a plan to better themselves with your loan. Then, when they've repaid the loan, you invest in the next person, and so on, so that your investment in helping people gets floated around indefinitely, making lives better. It is mind-blowingly easy and good, so much so that even a starving Seminarian can make little loans and enjoy every minute of it.

I was just so moved by the idea that we agreed on something, Jim, that I had to comment. I hope you'll forgive the little jibes about socialism. I couldn't let that go either, but it was meant as a gentle quip, not a thrown gauntlet.

Doug Hagler
Gomorrah, no, wait
San Anselmo, CA

6:52 PM, May 01, 2008  
Blogger Jim said...

I can basically agree with you, Doug. I'm glad you like micro credit, too.

But contrary to what you say, micro credit IS capitalism, a very simple and pure capitalism. It works so well because it is capitalism, and neither a welfare give-away nor a collectivist scheme. Capitalism CREATES wealth from enterprise.

Thank you for the Kiva information. It looks good.

However ... where's the information about whose money is being given away with debt forgiveness? I haven't received answers to my numbered "preliminary questions."

I'm going to use the highly touted Blogmeister's Prerogative at this point and say that there can be no more bunny-trail comments until someone establishes some answers to the numbered questions in the original posting.

So if you're going to post a comment, don't quibble. Don't pose a question. Please just answer some questions, so that we'll know what it is we're talking about, rather than just speaking in vague generalities.

My guess is that few if any around this table know the answers, and if we don't know, we can't have very well-informed opinions about debt forgiveness, can we? Who is going to do our homework for us?

Jim Berkley
Bellevue, WA

9:37 PM, May 01, 2008  
Blogger Doug Hagler said...

As you point out, the questions as you pose them are unanswerable by your audience (I'm guessing) but I thought "why not"? I don't want the conversation to end, necessarily, so my wild shots at the target might allow others to post as well perhaps - if nothing else, then to shoot me down.

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?

--> It depends on the original lending party, of course, which might be any of the above depending on what you're talking about. The information you have isn't sufficient to answer this. For the most part, when we are talking about the IMF or the World Bank, we are talking about governmental money, so tax money.

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?

--> International loans are a tiny drop in our bucket o' spending, so we won't feel it in a significant way - I don't think it will make us unable to do anything significant as a country. It is possible that loan forgiveness might cause parties to be reluctant to lend in the future, that's true, but if the other option is that the loan is never repaid while interest accrues, I'm not sure this is a worse solution, just trading one bad situation for another.

3. Where would the money come from to replace the forgiven repayments?

--> In the forgiveness schemes I've read about in loan forgiveness, nowhere. The debt is anulled, and the 'loss' is not recouped. Maybe this was a rhetorical question.

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”?

--> Our government can forgive our own loans, and can also, for example, work within the World Bank or the IMF to forgive loans from those agencies. In both cases, it seems to be a board-vote style decision for the countries involved in each fund in question. www.worldbank.org and www.imf.org if you want to follow up. I could be wrong, I'm not looking deeply. As far a I know, there is no way the government can forgive private loans, but I suppose a country could just stop repaying and call it "Jubilee" ,and the government could refuse to punish them, which might amount to the same thing. That isn't a good option, but it could happen to a private lender.

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?

--> If you follow it back, the World Bank's money is tax money, essentially (all the members of its various arms that I see are countries), and the IMF seems to be as well - their board of governors are appointed by member nations, and are usually heads of national banks. So at the source of the money-stream are you and I, taxpayers.

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?

--> (I wouldn't say arbitrary! They must have some criteria in mind. The legislation indicates that they do.) I think this is a repeat of the first part of question 2...in another kind of answer, the lenders here are governments, so they're anulling the loans by government decree - that is sort of their prerogative, I guess, since the money is "theirs". That is, a government, or governments collectively, can forgive its own loans, can't it?

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?

--> Well, debt forgiveness is only being considered for nations where interest repayment is proving disastrous, so it might be disastrous either way. Eternal interest repayment, or a dearth of loans in the future? Both are bad options.

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.

--> I definitely get a little nauseous when I think about lending money to impoverished nations for profit, but I'm just too Biblical when it comes to charging interest on loans (i.e., we should not). Its more likely that the loans won't be available in the future, since these countries are unlikely to get brand new loans at even higher interest rates, even if they are offered.

Perhaps the best point you made in your post is pointing out that it is repressive, kleptomaniacal and corrupt governments which receive the lion's share of the loans, leaving their people in deeper poverty with higher taxes to repay the debt while they wallow in their ill-gotten gains. I really like the idea of private citizens circumventing governments altogether to help each other - and for God's sake, not charging interest. Helping those in need should not be a for-profit enterprise. There are already so many ways one is able to benefit from impoverishing others, we don't need another. I would say - lend to the poor not for profit, or not at all.

P.S.

Microlending isn't capitalism or socialism, really, because it is not profit-motivated, nor is it redistribution on a societal level (though our "capitalist" nation sure does a lot of redistributing, doesn't it?). Capitalism is necessarily profit-motivated. Non-profits, for example, are not capitalist - nor are they really socialist, for the most part. Microlending is in the beautiful liminal space occupied by charity and generosity and hospitality - ways we show grace to each other, outside the usual economic machinations of either your favored method or mine.

As for capitalism creating wealth - that's certainly true, though if we didn't have the many wonderful socialist things I mentioned in my post, precious few of us would be able to enjoy it. A pure free market is a one-way trip to the great monopolies of the 1800s. It is socialist ideals which have provided us with the society we have now, where 8-year-olds don't work in factories and where its illegal to poison me at work. Those are both examples of redistribution, of keeping profits from someone on behalf of the common good. Socialism is not intended to create wealth, but to create justice. A pure socialist state would not have wealth, per se, because it would not have ownership - and it is probably as unworkable as a pure capitalist system, which would be a social-Darwinian nightmare. I like a balance, myself - not quite the one we've struck here in the US, but we're moving in the right direction compared with, say, 1900...for the most part.

This is really funny because I'm not even a socialist, but I feel like, since our society has so many socialist programs, many of which I think are good (as mentioned in my previous post - add public schools and food stamps and medicaid to the list), I should defend it now and then. You should probably get a real socialist to do a better job though.

Doug Hagler
San Anselmo, CA

3:05 AM, May 02, 2008  
Blogger Doug Hagler said...

As for the question of who will do our homework for us, I recommend Google. There is a huge debate going on over debt forgiveness for loans to poor nations, which has been going on for years now, and there is a wealth of material on both sides of the debate. The churches have been involved for a while now on both sides of the question. Some people are even offering solutions outside the current World Bank/IMF system. I recommend that anyone who wants to have an intelligent conversation about this topic do some reading of the major arguments on both sides. I've been involved in the question in the past, but not in the last few years, so I've fallen behind. I, however, will do other reading because I don't have time to add this to the workload. I just wanted to open up discussion again.

And also shamelessly plug microlending.

Doug Hagler
still
San Anselmo, CA

3:09 AM, May 02, 2008  
Blogger Viola said...

Jim & Doug,
I would recommend Michael Kruse's series http://krusekronicle.typepad.com/kruse_kronicle/2005/08/jubilee_index.html">Jubilee. I think you both know who he is and that he is on the GAC.
Viola Larson
Sacramento, CA

7:54 AM, May 02, 2008  
Blogger Viola said...

That was suppose to say Jubilee Series--I am not sure why it did that. Anyway it will still get you there.
Viola Larson
Sacramento, CA

7:56 AM, May 02, 2008  
Blogger Dennis said...

Jim,

I appreciate all of the prior comments.

You wondered why I called your comments kind of a rant. It is because you said the following: "The forced redistribution of wealth is a much more socialist or communist idea than it is capitalist. (etc.)" Given these words, I wonder how you view the current redistribution of wealth from the poor to the rich. Even Warren Buffet has testified to Congress that his receptionist pays income tax at a higher rate than he does. And I don't see that God favors a particular type of economic system.

You didn't address my concern that the Washington office is supposed to follow General Assembly directives, not make up its own policies. If the Washington office is doing exactly what it is supposed to do, isn't your argument rather with prior General Assemblies? And if it isn't, it seems appropriate to take it to task for not following the resolutions of prior General Assemblies.

I appreciate your blog and the opportunity you provide to exchange viewpoints this way.

Dennis Veith
Ferndale, WA

10:18 AM, May 03, 2008  

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