As others have stated in other ways, this assumption is completely incorrect. Many people and companies are solvent and many indeed are owed money.
Assuming this was even possible without collapsing the whole money supply, the result would be to reward those who over borrow and to punish those who borrow within their means. Hopefully they were presenting this as the bad idea it is. I already have a low opinion of NPR.
There is also biblical precedent in debt forgiveness: during the Jubilee year, all debts between the People of God* are supposed to be forgiven and all land was supposed to go back into the hands of the clans to which they were originally assigned. Of course, most of the time this wasn’t actually enforced, but if I went to look it up I could probably even quote chapter and verse.
*I’m not as well versed in the Bible as I’d like to be, so I don’t remember if that means debts against Gentiles don’t fall under Jubilee year requirements. Would another Doper more familiar with the Torah be able to provide enlightenment?
It reminds me of peoples’ thinking about polygamy. Lots of men seem to think it’s a great idea that they can have multiple wives; it doesn’t occur to them that more likely than not, some other guy (who is more handsome, powerful, richer, etc.) will end up with the girl he would have otherwise married and he will get either nothing or a girl who is far less attractive.
Or peoples’ thinking about student loans. It seems like a great idea that they can borrow money for their education; it doesn’t occur to them that other students will be borrowing money and bidding up tuition levels.
Is there a name for this fallacy?
The easiest way to unravel it and bring about a 0 debt economy is to suddenly declare that dollars are now worthless and all transactions in the future will be done in terms of some other currency any debt in dollars disappears and all that is left is real assets in whomever’s hands they happened to end up.
Speaking of student loans, I’m hoping I can piggy-back off this thread to address a question I’ve been having.
The kids want student loan forgiveness. My instinct says that would be a stupid thing to do, but what, in reality, would actually happen to the economy as a result?
It is similar to the “veil of ignorance/original position” thought experiment:
Essentially, people who commit this fallacy are assuming that they would be in a position to benefit from whatever social change or issue they are proposing, rather than being the butt monkey.
One person’s debt is the income of someone else who covered that debt or produced or paid for that original value.
If I sold you my paid off house and you owed me $300,000 and we just forgave your debt, what happened to my investment? I have been robbed of $300,000 or you are being granted the same amount as a free wind-fall.
Debt forgiveness is really just the confiscation of someone’s assets. It is easy to imagine when the assets belong to some faceless bank or corporation but ultimatly those assets are only being controlled by the bank and belong to someone, somewhere who provided the money and expects a return.
Just so people don’t go thinking that this was something than NPR was supporting, pushing, or in any way endorsing - it was an interview with an anthropologist talking about the history of debt. The author does mention thinking it’s a good idea in the abstract, but the host certainly doesn’t endorse it.
I believe this is the interview: http://marketplace.publicradio.org/display/web/2011/10/28/mm-the-first-5000-years-of-debt/
And there is a modern word for the cancellation of debt: bankruptcy.
I don’t know about the economy but that would piss me off to no end. I paid for my education and I’ve paid for both of my kids. Now some people think theirs should be free even though they agreed to pay? Forgiving students loans would create two classes of students: Chumps who do work and the other people.
Someone should anonymous poll this question. I’d like to see the percentage of yea and nay.
No problem here.
Where do I find the “nastiness” guidlines? Do they apply equally to Tea Baggers and Occupiers?
They apply to everyone. I leave it to you to figure out how “Hopefully the police batons are cracking the right heads” relates to our main rule, which is “Don’t be a jerk.” If you have any other questions, please start a thread in ATMB or send a private message.
Well what exactly did you have in mind? The obvious thing to do is to change the bankruptcy code back to where it was in 1997 where private student loans could be discharged in bankruptcy just like any other debt; and federal loans could be discharged if they had been in default for 7 years.
I doubt this would have a big impact on the economy. To be sure, shareholders in Sallie Mae would take a haircut just Sallie Mae shareholders enjoyed a windfall a few years back when the bankruptcy code was changed in their favor. But 10 or 15 years ago, student lenders were able to make a living; student loans were made; and so on.
I agree it’s similar. Anyway, unless there is already a name for it, I hereby dub it the “Take-Home Exam Syndrome.”
Proble there is that it did kill the private student-loan industry. People could just declare bankruptcy straight from college (when they had no assets). The credit hit was meaningless and unimportnt - probably being entirely off the books before they made any major purchases. It may be that the private student-loan industry nhas been a problem for other reasons, but even there the feds are the bigger issue by far
That’s not true, private student loans were still being made back then. I knew plenty of students who took out private student loans. Lenders were just more careful then than they are now.
This isn’t precisely how it works. If the bank gets $100 of your money they cannot create $400 instantly and loan out nonexistent money.
However, if they get $100 of your money and lend me $90 of it let’s assume a 10% reserve requirement) and I pay Jim the $90 for something and he deposits the $90, they can now lend $81 to Sally, who pays it to Kumar, who deposits the $81 and now they can lend $72.90 to Steve, and so on. The $100 keeps getting recycled. minus the fractional reserve requirement.
I realize you might already know this but many people don’t so it’s kind of important to keep it clear.
Some years ago there was a PBS documentary called The Farmer’s Wife. One of the most tense scenes was a conversation between “the farmer,” who was deeply in debt, trying to negotiate with a local merchant. The farmer argued that if he couldn’t get out of some of his debts, he’d go bankrupt and lose the farm. The merchant argued that even if he forgave the farmer’s loan, the farmer might still go bankrupt, and the merchant wouldn’t even have a chance to collect a portion of the debt when the farmer’s land and equipment were sold off.
As I understand it, until the law changed student loans were almost always required to be cosigned. Changing that law worked in favor of those who didn’t have convenient parents available. Aside from which, the feds are not going to write off a big chunk of money they have coming.