The hidden meanings of debt

| December 15, 2011 | 0 Comments

Many observers have talked about a “morality play” when discussing the north vs. south divide in the Europe debt crisis: the prudent Germans, Dutch and Finns vs. the lazy ne’er-do-wells of Greece, Ireland, Portugal, Spain and Italy. Witness:

“It was a kind of morality play, intended to show to skeptical German voters how the Greek government intends to keep its promises to continue cutting public spending and services to meet stiff deficit requirements, despite increasing political opposition.”
-Steven Erlanger in the New York Times.

“[It's] wrong to think of this as some sort of pat morality play, where the Germans have done everything right and the Irish have done everything wrong.”
-Ezra Klein in the Washington Post.

“Even if those from Europe’s northern countries are right in claiming that the euro would work if effective discipline could be imposed on others (I think they are wrong), they are deluding themselves with a morality play.”
-Joseph Stiglitz in Project Syndicate.

What is a morality play, anyway? As Philip Pilkingon explains, the idea behind this Tudor England convention was

that it would impart wisdom to those who watched it. The common people – thought somewhat stupid by the writers – could then follow the simple moral messages purported by the playwright. It was hoped, for example, that if onlookers could see Virtue winning out on the stage against Prodigality, the citizenry would then act more virtuously and be less prodigious and greedy.

The discussion of fiscal prudence vs. fiscal profligacy in Europe does seem to have taken on a normative hue. It’s doesn’t seem to be just about economics, it’s also about who’s a saint and who’s a sinner.

Reading Debt: The First 5,000 Years, has helped me to better understand why.  This excellent book is by David Graeber, the American anthropologist who Businessweek described as the “anti-leader of Occupy Wall Street.” While I hope to write a full review of his book sometime soon, I wanted to call attention to his citation of British sociologist Geoffrey Ingham. Ingham says:

In all Indo-European languages, words for “debt” are synonymous with those for “sin” or “guilt”, illustrating the links between religion, payment and the mediation of the sacred and profane realms by “money.” For example, there is a connection between money (German Geld), indemnity or sacrifice (Old English Geild), tax (Gothic Gild) and, of course, guilt.

Very intriguing. Consider this also in light of strategic default, a topic recently addressed by James Surowiecki in the New Yorker. Companies, like American Airlines, often decide to declare bankruptcy for purely economic reasons. When they do so they’re applauded by analysts for making a smart move: they can restructure their debts, renegotiate with the unions and generally get a fresh start.

By some measures over half of all U.S. mortgages are underwater– borrowers owe more on their mortgage than the house is worth. Unfortunately for many, the value of their house may never rebound to the point where this situation is reversed. But instead of following American Airlines’ example, homeowners face great moral pressure to throw good money after bad. Surowiecki:

According to one study, eighty-one per cent of Americans think it’s immoral not to pay your mortgage when you can, and the idea of default is shaped by what Brent White, a law professor at the University of Arizona, calls a discourse of “shame, guilt, and fear.” When the housing bubble burst, the banking industry was terrified by the possibility that homeowners might walk away en masse, since that would have stuck lenders with large losses and a huge number of marked-down homes. So strategic default was portrayed as the act of dishonorable deadbeats. David Walker, of the Peterson Foundation, waxed nostalgic about debtors’ prisons, and John Courson, the head of the Mortgage Bankers Association, argued that defaulters were sending the wrong message “to their family and their kids and their friends.”

Looks like it’s not just the Europeans caught up in a morality play. (For more on the obscured meanings within today’s economic debates see Ed Harrison’s recent post on code words and dog whistle economics.)

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Category: Eurozone