{"id":906,"date":"2011-07-13T15:13:07","date_gmt":"2011-07-13T19:13:07","guid":{"rendered":"http:\/\/www3.law.harvard.edu\/journals\/hlpr\/?p=906"},"modified":"2015-10-02T15:52:50","modified_gmt":"2015-10-02T15:52:50","slug":"the-debtor-creditor-divide","status":"publish","type":"post","link":"https:\/\/journals.law.harvard.edu\/lpr\/2011\/07\/13\/the-debtor-creditor-divide\/","title":{"rendered":"The Debtor-Creditor Divide"},"content":{"rendered":"

Anthony Kammer<\/em><\/p>\n

Several weeks ago, Bob Kuttner published an excellent 1-page piece called \u201cDebtor\u2019s Prison\u201d\u00a0(pdf<\/a>) in the American Prospect. The distinction he offers\u00a0now seems quite clearly to be one of the fundamental battle grounds in American politics\u2014between\u00a0rentier<\/a>\u00a0creditors and debtors. This is a line that\u2019s deeply obscured in our political discourse but one that underlies virtually\u00a0every economic debate. Reading this article and Paul Krugman\u2019s\u00a0follow-up<\/a>\u00a0offered one of those rare, paradigm-shifting moments where a number of seemingly disparate and complicated elements all fell together into one coherent picture.<\/p>\n

<\/span>The basic idea is that decades of U.S. financial deregulation and the government\u2019s response to the financial crisis have systematically favored the claims of creditors and transferred the losses and downside of their risk to taxpayers, homeowners, and less sophisticated borrowers. To quote Krugman, \u201ceverything we\u2019re seeing makes sense if you think of the right as representing the interests of rentiers, of creditors who have claims from the past \u2014 bonds, loans, cash \u2014 as opposed to people actually trying to make a living through producing stuff.\u201d I also recommend Yves Smith\u2019s post on\u00a0the costs of rentier rule<\/a>.<\/p>\n

<\/p>\n

Geithner, Summers, and most of Obama\u2019s financial team have done little to alter this development. Charles Fergesun, the director of\u00a0Inside Job<\/em>,\u00a0has drawn attention<\/a>\u00a0to regulators\u2019 unwillingness to see creditors take even minor haircuts. This has proven true even in egregious cases such as AIG\u2019s toxic credit default swaps in which creditors cashed in at 100 cents on the dollar during the bailout. As Shelia Bair, the Bush-appointee who recently stepped down as Chairman of the FDIC, noted in\u00a0her wonderful farewell op-ed<\/a>\u00a0in the Washington Post, there were few prominent regulators advocating that banks write down losses for the bad mortgages and other bad borrowing.\u00a0Quantitative easing<\/a>\u00a0and the Fed\u2019s decision to keep interest rates near zero have likewise served as a second stimulus for large creditors but\u00a0have not translated into economic growth or more jobs<\/a>.<\/p>\n

As Tim Harford argues in his book,\u00a0Adapt: Why Success Always Starts With Failure<\/a>, we need individuals and businesses to take risks because success is an iterative, evolutionary process of failing and building off of what works. But when we punish borrowing so harshly and reward rentiers uncritically, we destroy incentives to innovate and instead encourage speculation and bubble formation. Getting people above water in their homes and allowing businesses to take loans on favorable terms is precisely what we need to stimulate demand and begin an economic recovery. Even Goldman Sachs\u00a0acknowledged<\/a>\u00a0that this job crisis is a problem caused by too little aggregate demand.<\/p>\n

But instead the response has been more of the same. In order to stay in creditors\u2019 good favor, Europe is facing what feels like an endless series of sovereign debt crises and austerity measures forced on its population, and the U.S. is quickly throwing itself down the same rabbit hole. By imposing austerity measures and penalizing borrowers, policy-makers risk creating an entire class or an entire generation that\u2019s too indebted to innovate, move, or seek additional training \u2014 creditors need to wake up and realize they\u2019re not getting paid this way either.<\/p>\n

Perhaps the most frustrating aspect of this entire situation is that because our political system is so closely tied to its own creditor class, this conversation is completely absent from the current fiscal debates. As Peter Dorman rather tragically\u00a0observed<\/a>:<\/p>\n

\u201cThere are lots of interesting, complex issues in political economy. None of that matters now: the world is in the hands of politicians governed by expediency calculations whose time horizon can be measured in weeks. As far as I can tell, the gross illogic of their policies is simply beside the point.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Anthony Kammer Several weeks ago, Bob Kuttner published an excellent 1-page piece called \u201cDebtor\u2019s Prison\u201d\u00a0(pdf) in the American Prospect. The […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[2],"tags":[],"class_list":["post-906","post","type-post","status-publish","format-standard","hentry","category-blog"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/peZQka-eC","_links":{"self":[{"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/posts\/906","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/comments?post=906"}],"version-history":[{"count":0,"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/posts\/906\/revisions"}],"wp:attachment":[{"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/media?parent=906"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/categories?post=906"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/tags?post=906"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}