For many shoppers, Christmas is a time to rack up debts in the expression of seasonal goodwill. For policymakers, it should be the holiday of debt forgiveness.
The inspiration for that religious-sounding thought comes from the atheist philosopher Hannah Arendt. She argued that forgiveness has a central role in human affairs, and the secular world should be grateful to Christianity for the discovery. Arendt was of course talking about forgiveness in the common understanding of the term – a pardon for a wrong, the cancellation of “you owe me one”. But her understanding of this as enabling people to “begin something new” works just as well when thinking about the financial equivalent: a willing erasure of material obligations.
Consider a loan from parents to a son or daughter who wants to start a business. If the new venture fails, a tough demand for repayment is likely to spawn resentment. Debt forgiveness will breed gratitude and closer ties.
The gains of forgiveness are less psychological when the debts in question are loans from mega-banks to anonymous companies or overly ambitious homeowners, or bonds issued by cash-short governments. Still, when borrowers would be impoverished by making every effort to repay, forgiveness is ultimately the better way. Lenders should take some responsibility for their own poor judgement. Besides, strict exactions create socially divisive goodwill, while the dissolution of excessively onerous obligations gives companies and families a chance to engage in socially beneficial activities, and sets governments free to serve the governed better.
Consider also what debt forgiveness avoids. Some loans are taken out in desperation and can probably never be repaid. Others go irredeemably bad because of an unpredictable problem – a flood, war or economic downturn. If all these un-payable debts are held sacrosanct, then the number of overburdened borrowers and the sum of unpaid debts will inevitably increase.