Debt Forgiveness Is Real
Croatia is doing one of the most utopian economic experiments you can imagine: it is clearing its poorest citizens of all their debts. Is this a good idea? Yes. Is it the only idea? Not at all.
Croatia's plan offers a small-scale experiment in debt forgiveness in the real world, and will be closely watched by those who hate the idea and those who love it alike. The details, via the Washington Post, are this: the nation is forgiving the debts of its 60,000 poorest citizens, as long as those debts are less than $5,100, the person's income is less than $138 (around 3% of the total debt), and the person doesn't own property or have any savings. In other words, they are wiping out modest debts of the truly destitute.
A benefit of debt relief is that a government can do it without spending any cash directly. The Croation government convinced various public and private creditors to swallow the losses themselves, for the good of the overall economy—"municipal authorities, utility and telecoms providers, tax authorities and banks" are among those writing off debts, according to the FT. Critics warn that the plan could cause more people to run up debts of their own. That's a concern, but Croatia found it to be less of a concern than the huge percentage of their population that was debt-riddled and unable to contribute to the national economic spending.
For context, the debt forgiven amounts to somewhere between 1% and 7% of the nation's total debt. It is a fairly small sliver. If you were to project the same program out to America, it would cover about 4 million American citizens, and even if it covered only 1% of total household debt, it would be a $120 billion program. Cheaper than reparations, but not an insubstantial sum.
Debt forgiveness is a good way to give hope to the hopelessly indebted. But Croatia's program is too small to make a real dent—even though it is still far too generous to ever pass Congress here in the USA, where food stamps are still considered an egregious government handout in some quarters. Fortunately, even if debt forgiveness is politically unpalatable here (for now), there are still other ways to accomplish basically the same goal, at least somewhat:
- Allow student debt to be written off in bankruptcy.
- Bring back the WPA—a massive government jobs program.
- Tax very high incomes a lot and push the revenue towards education and social programs that benefit the poor and middle class.
- Abolish regressive taxes like the payroll tax and get rid of tax loopholes like the capital gains tax that benefit the rich and not the poor.
Socialism can be accomplished in many ways. Debt forgiveness is just one. The goal is fairness and opportunity for all. We won't be seeing any of these soon. (Barack Obama's new budget proposes some very minor versions of these goals and all of them were immediately declared "political nonstarters," except maybe the infrastructure jobs program.) America, after all, is no Croatia.
