OWS has taught us something useful. People are generally open to the idea that things aren't fair, and they haven't been for a long time.
Right now, that unfairness is often expressed as income inequality, but the sum of 30 years of growing income inequality is severe wealth inequality. With the collapse of the economy and the spike in unemployment and underemployment, it's been made much more severe, especially when you consider houses underwater and ballooning student loan debt.
This morning, Paul Krugman linked to a blog about how sovereign debt is eliminated: by default, taxation, or printing money (inflation). Each of these choices picks winners and losers. Default harms bondholders, taxation (depending on progressivity) harms citizens, and inflation harms rentiers (by reducing the real value of borrowed money).
This got me thinking. How do we solve the problem of wealth inequality? Clearly, there's no way to directly tax wealth in this country. A law that requires the wealthy to deliver 10% of their net worth to the government would never work here. In fact, most of our legislation appears to work in the opposite direction.
But there's more than one way to skin this cat. I believe that the simplest way to redistribute wealth and right the economy today is to speed the deleveraging of middle-class debt (mortgages and student loans, primarily). Like with sovereign debt, there are multiple ways to relieve private debt.
One method is inflation. During the post-war period of the late ‘40s and early ‘50s, US inflation ran about 10% or 15%. That rate of real inflation, if it manifested across all dollar-denominated assets and cash flows, would increase wages, prices, stocks, commodities. But it would not affect debt. It's a blunt instrument, and it has some serious affects. But over the course of 5 or 10 years, it would shift a portion of wealth from bondholders (banks, bankers, stockholders) to individual homeowners and taxpayers.
Another method is a partial or total default. We are doing it now, but in the most painful way possible. Individual foreclosures are resetting home prices and debt, but it's happening one destroyed family at a time. And, of course, you can't escape student loan debt, even through bankruptcy. But a massive program to reduce housing and student-loan debt would reset the housing market, free up consumer dollars, awaken the construction industry. The bill, again, would be paid by the banks, their bondholders, and stockholders.
There’s a moral
Debt forgiveness is not unprecedented. This has happened for centuries, and it happens frequently when the debts are so high (think "Greece") that an uncontrolled default would cause havoc. We need to consider this approach for smaller loans on a much broader scale.
Income redistribution will be hard to do. Republicans are working studiously to lower, not raise, the progressivity of the tax code. But wealth distribution, under the right name, might actually be achievable, and it could improve the economies of lower- and middle-class households at the same time that it could heal the national economy.