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Debt forgiveness is in the air, and everywhere can be heard the jubilant cries from college graduates and attendees who have yet to pay off their loans, many of which were subsidized at below-market interest rates. The Biden administration’s policy is being positioned as compassion, and some Christians have been quick to jump on the bandwagon and argue that this debt write-off is consistent with the Judeo-Christian concept of Jubilee.
Without doubt, some people are struggling with burdensome student debt, and charitable action toward these borrowers may be warranted. Some private individuals have even taken this challenge upon their own shoulders and alleviated the burden of others. Calling the Biden administration’s across-the-board debt write-off to be a Jubilee, however, distorts the historical and theological substance of that term. Moreover, it undercuts the millennia-old economic logic embedded in the concept of debt forgiveness and could quite possibly make the problem worse.
A proper understanding of Jubilee and socially-responsible debt forgiveness is warranted.
What is Jubilee (in Proper Context)?
The concept of a Jubilee year first appears in Leviticus 25. Context is important here. Leviticus follows the Book of Exodus, which recounts the difficulties of the Israelites fleeing Egypt. During this flight, the Israelites could rely upon manna, an unrequited provision of resources that allowed them to survive as a people. Once they crossed the Jordan and entered the land flowing with milk and honey, however, everyone was going to have to work. This is Econ 101; consumption requires production.
Alas, consumption is sometimes greater than production, especially among those getting their start or those who have fallen on hard times. As a result, debt accrues. That Jubilee is normally associated with a reset of debt is uncontroversial, but a further condition applies. Its aim must be to reset the economy when systematic imbalances get out of hand. The contrast with manna emphasizes how Jubilee creates a space for accumulation. Capital accumulation is necessary for productivity, and the growth necessary for continued consumption in a world where produce does not simply rain down from Heaven. Jubilee, properly conceived, is an acknowledgement that the promised land requires production to generate enough resources for society to flourish. Granted, those who worked harder would have more, but this was not to say that great deprivation must be tolerated.
The principle of Jubilee focuses on how long it would be permissible to suffer the consequences of economic hardship without relief. In some cases, seven years acted as a maximum length of time for a laborious servitude, whereupon relief would be given (the sabbatical). For other matters, a set of seven sabbaticals (49 years) would call up a special Jubilee year in the fiftieth year. In this year, land would be returned to the historical owners, as indicated by the tribal allotments from each of the eleven tribes of Israel that settled in the promised land. This acknowledged that all resources were from God, and use of those resources depended on us dealing fairly with one another.
Jubilee also works as a type of debt cancellation, and as such, is a historical antecedent to something like bankruptcy law. Under US bankruptcy law, for example, the period of time in which credit is ruined and the ability to borrow is curtailed serves as a punishment for prodigal behavior and/or irresponsible risk taking. Limiting this period to seven years ends up restoring some of those privileges after a designated time.
Jubilee, then, becomes a time of resetting because it restores the relationships among people in society along a more equal arrangement. Jubilee sets people right again once they have become too unequal. A person who is very successful in his ventures could accumulate lots of resources like land, favorable loans to others, and some status that comes with this success. On the other hand, there could be great deprivation. While the ancients had no problem with a person who made bad decisions living with the consequences of those decisions, the effect this had for successive generations could result in some tribes ascending and others descending in the social hierarchy. These systematic and societal effects would challenge any group, including the Israelites, and Jubilee enacted the established belief that survival is dependent upon social cohesion and the economic health of all.
One other aspect that is implied, but not often emphasized, is that Jubilee is a time for social reflection on why depraved conditions may have arisen. In other words, Jubilee sets out to examine the root causes of debt and suggest structural reforms that might mitigate the necessity for future resets. Widows and orphans struggle, but Jubilee is the expression of hope. Temples crumble and invaders wreak havoc, but society atones in this way to restore the conditions necessary for proper flourishing.
Student Debt Forgiveness and Jubilee
To review, Jubilee as it was practiced in historical times had three key components. First, it provided an incentive for production. Without this, free riding on the charity of others would expand and undercut the economic potential of societies. Second, Jubilee was designed to create a more equal social order wherein all citizens were given the opportunity to rise out of debilitating circumstances, though it was no guarantee of any particular outcome. Finally, Jubilee encourages a social reckoning of the structural circumstances that produced the deterioration of justice in the first place.
When analyzing the Biden Administration’s student loan forgiveness, however, what becomes clear is that there are several ways in which the policy fails regarding these criteria. In the first place, the forgiveness plan proposed doesn’t do anything to incentivize production. It was a surprise to those receiving it. Nor does the policy give an incentive for people to pursue an education to increase their productivity because, as currently positioned, it represents a one-time benefit to people who have already made their educational choices. A more cynical (perhaps accurate) read of the policy is that it is merely a payoff to get a key Democratic constituency to the polls in November.
The fact that debt forgiveness came after the recipient’s decision to go to school and accrue debt means some people borrowed less than they would have had they known it would be forgiven. Again, this does nothing to foster future productivity. Forgiveness also includes some people who were either excessively optimistic about education’s contribution to their own productivity, or simply prodigal with their resources. If future student borrowers anticipate another loan forgiveness policy in line with moral hazard predictions, and such a policy never occurs, those individuals may very well be making unproductive financial decisions based upon distorted incentives.
The second function of ancient Jubilee was to reset inequities that arose over time and would potentially trap individuals in inescapable poverty. This would apply to the current loan forgiveness only if its recipients were those on the bottom rung of the socio-economic ladder with little chance of climbing upwards. The college graduates who successfully borrowed to finance their education and then received jobs, however, that only college graduates can get happen to be relatively affluent. They are not at the bottom rung, but more likely toward the top 60 percent of the population according to a Wharton Business School analysis. A transfer of wealth from the very rich to the moderately rich wouldn’t strike us as a Jubilee; the transfer from the general taxpayer to the moderately rich is even less attractive on these terms, especially if that general taxpayer paid off their student loans or did not attend college. Such an outcome is not consistent with the intended justice of Jubilee.
Finally, the structural problems giving rise to inequality, which access to higher education supposedly remedies, are not addressed by the Biden administration’s debt forgiveness. To be burdened by student debt, you must first get to college. The current plan for a generalized forgiveness does nothing to lower the barriers to entry that exist for college in the first place. Specifically, the failure of the public education system to reduce the role that parental income plays in predicting who will end up among the wealthy or impoverished are not addressed by this approach. Moreover, debt forgiveness does not incentivize universities to slow down the rate of tuition increases; and there is evidence that it may do the exact opposite to the extent that college administrators see this as a new form of financial aid.
Put simply, a one-time debt write-off ignores the real changes that need to be made in both higher and K-12 education. Worse yet, it actually provides an incentive for universities to raise tuition and avoid fiscal responsibility knowing a student loan bail-out is politically appealing. Fomenting moral hazard is not a morally just policy. A more targeted program could improve the loan forgiveness approach, but at the end of the day, it is the wrong policy from the point of view of the ancient notion of Jubilee.
Jubilee Still Exists, Diffusely
In the days of the Old Testament, when government structures were fairly simple, Jubilee provided an effective method of self-governance that promoted social cohesion. It was directed at specific circumstances in small societies in a manner that balanced the incentives for individuals to remain productive contributors to society with the need to forgive unjust circumstances and ensure such situations did not arise again. True, these efforts often fell short of their lofty goals, but they did provide needed guardrails.
Today, we have modern governments, which have significantly more power to tinker with economic incentives, monitoring and enforcing policies that ostensibly benefit the commonweal.
One other way that modern societies establish the aims of Jubilee are through public schooling. The idea that someone can be born into poverty, and as a result be destined to continue in poverty, is the exact type of thing that the ancient principles were designed to prevent. Talent discovery alone should encourage us to have an open social order where merit is both discovered and realized. This was the production-incentive goal of Jubilee in the first place. The realization of a meritocracy in the US remains an ideal, but this ideal might have been realized to its greatest extent in human history. Public schooling provides a resource critical for access to the economy to anyone that cannot afford access on his own. Other welfare transfers, such as Medicaid, Social Security, and poverty abatement, programs serve similar functions.
We do know, however, from the expansive literature on public choice, that government is often itself the problem, creating perverse incentives that lead to structural inequalities. Thomas Sowell has compellingly argued that programs designed to address structural inequities actually foster and entrench them. Jubilee, as conceived by our ancestors, was never envisioned to be a centralized welfare state.
Fortunately, the echoes of ancient Jubilee persist in our values, norms, institutions, and traditions. It is diffused throughout our civil society. Private charity is the most visible example of this, but cultural norms such as gifting also fit into the realm of “socio-economic rebalancing.” Religious institutions, in particular, excel in this area providing a wide variety of social and economic assistance to those in need, from drug rehabilitation to daycare for working parents. While this may not seem like the traditional seven or fifty-year Jubilee, it fits within the spiritual framework of forgiveness and true compassion that seeks to develop the productive talents bestowed upon every person by virtue of their innate value as individual human beings.