Debt looms over the good and bad in Ontario budget

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The good, even visionary, news in Ontario's recent budget was elimination of student debt to cover tuition, for all families under $50,000 of income and many above. It amounts to "free tuition." It doesn't matter if there's no new money provided to do it, or if it's "just moving money around," as the opposition says. It doesn't matter because a fateful dynamic was finally confronted.

It's about debt and it doesn't just apply to students but to the economy itself. Tuition has been allowed to rise continually, which then must be covered by making ever-larger student loans available. This is a formula for disaster: for students, society and economic growth.

How so? The kids finish university, start making money, and it goes to retiring their debt; not to buying homes, starting a business or hiring music teachers for their own kids. Sometimes they emerge from debt but not soon -- Barack and Michelle Obama didn't retire their student loans till he became a U.S. senator in 2004. This is the magic of compound interest and always has been. The lenders thrive and the debtors gasp for air. You load 16 tons and whaddya get?

I'm indebted to U.S. economist Michael Hudson's new book, Killing the Host, for a simple reminder of these realities. (What ya get is "another day older and deeper in debt.") After a distinguished lifetime of economisting, Hudson still manages to be flabbergasted at the con pulled off by the financial sector that claim to add to productivity with their activity versus undermining it. (They're responsible for an economic "subtrahend," he says, not an increase.) Debt preceded capitalism and almost everything else, and has always been parasitic and economically destructive. That hasn't changed since ancient Mesopotamia.

In feudal times, lords and nobles conquered land, then extracted rent from serfs and peasants who worked it: "making money while they slept," said 19th-century economist James Mill. They were "a tumour on the body politic." Finance honchos now make money while they sleep or snort coke. Classical economists like Adam Smith or Mill, whom Hudson reveres, exposed the scam and insisted on distinguishing between productive and unproductive wealth. Hudson's hidush, as we used to say in Talmud study -- a minute, brilliant twist on a big old truth -- is that today's feudal wastrels, sucking up wealth via interest that could've created something, are in FIRE: finance, insurance, real estate.

The masters of debt always drive up costs to debtors till they can't pay. Then what? In ancient times they took people into debt bondage as virtual slaves. (Hence the term, bonds.) Today they're more likely to try to conscript the common possessions of a society: "natural monopolies" like highways (since you can't have competing highways), public schools, or energy utilities. These rules apply to governments as well as individuals. Look at poor Greece, anything that was recognizably its heritage is being privatized in lieu of loan payments.

And so we come to Kathleen Wynne's bad budget idea, equal to her good one on tuition: selling off Hydro One to build some transit she promised but is afraid to raise taxes for. Nothing makes Ontario look as much like Greece as privatizing, i.e. gifting, Hydro to the parasites. Once they get it they'll inevitably jack up rates, if only to pay off the loans they took out themselves (or loaned themselves) to do it. For a one-time return on a subway or two, we give up perpetual funding that could keep the universities tuition-free forever, while growing the economy in tandem. This again is the economic illogic of debt.

Who comes up with the particularly bad ideas? Apparently it's former civil servants cum bankers like Don Drummond and Ed Clark who the Liberals love to consult. I can hardly think of a worse combo of arrogance (Yes, Minister) and narrow, greedy economic vision. Why isn't anyone who's actually produced something -- as a businessperson or an echt worker -- ever drafted for this stuff?

Hudson is also obsessed by the ancient Near East because it's there that people realized debt catastrophes were inevitable and their only solution was periodic massive debt cancellations, as in the Biblical jubilee year. It's still true, he says. The only question is who gets the forgiveness (now called writedowns or bailouts): the lenders, who caused it all, or the debtors, who lose everything?

This column was first published in the Toronto Star.

Photo: Premier of Ontario Photography/flickr

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