What is debt?

Mrs. Aco has a habit of asking those questions on economics that hurt.  ‘How does buying more plastic crap from China increase our GDP?’ kinda stuff.  ‘And how does GDP make anyone happy?’  Sometimes, when I’m forced to teach HRM, she rummages the Internet for papers that describe it as an evil, so students don’t just have to take my word for it.  The other day, she checked over some figures I’d put together for a lecture on ‘surplus capital’.  It helps not to be caught out on arithmetic when explaining Collateralised Derivative Options and the price of fish in Zambian Delta Hedged Stock.  ‘This debt is odd stuff’, she said.  Everyone seems to owe it to everyone else.  If these were ordinary equations, most of it would just cancel out’.

I’ve long taught economics as ‘Dr. Strangelove’s Game’ – based on signing contracts on hunchbacks for rights to some bubble owned by someone else far away.  Capital has ceased to be a facilitating service and has become a parasitic monster.  My lecture was really about how inter-connected Europe has become.  What Mrs A noticed really set me thinking, so I went checking figures.

It turns out that, should everyone who owes everyone else across the EU just co-cancel what they owe each other, there’s precious little debt left.  Britain, for instance, is only looking at 14% of GDP.

It turns out someone else has produced all the figures for the EU.  They are on David Malone’s site.  Mrs A asked me who owns this debt and I have to say for now I don’t know and have not much clue what it services.  It’s all a bit like ‘If Frank owes Betty £50, Betty owes Cedric £40 and Cedric owes Frank £60, how much is the total debt?’  If Cedric cancels Betty’s debt to him and so on there isn’t much.

A fairly detailed study of 6 EU countries is available at http://www.eudebtwriteoff.com/ where you can access a pdf.  The fix looks too good to be true – writing off the debts as Cedric, Frank and Betty could.  At the moment I only know I have no answer as an economist to the question of what debt is.  With all the wizardry of discounted cashflow, I can’t explain much about why capital sin’t working on behalf of all of us either, without recourse to a conspiracy of bent accounting.  No politics dares put any of this in front of us.

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