Econ 397: Debt Economics
University of Massachusetts Amherst
Course description
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What is the difference between a mere obligation, a sense that one ought to behave in a certain way, or even that one owes something to someone, and a debt, properly speaking? The answer is simple: money. The difference between a debt and an obligation is that a debt can be precisely quantified. This requires money. Not only is it money that makes debt possible: money and debt appear on the scene [historically] at exactly the same time. Some of the very first written documents that have come down to us are Mesopotamian tablets recording credits and debits, rations issued by temples, money owed for rent of temple lands, the value of each precisely specified in grain and silver. Some of the earliest works of moral philosophy, in turn, are reflections on what it means to imagine morality as debt—that is, in terms of money. A history of debt, then, is thus necessarily a history of money—and the easiest way to understand the role that debt has played in human society is simply to follow the forms that money has taken, and the way money has been used, across the centuries—and the arguments that inevitably ensued about what all this means. (Graeber, 2011; p. 21)
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This course will not only be about the role of debt in the economy strictly speaking. As emphasized in the passage above by the late David Graeber (1961-2020), a history of debt is necessarily a history of money. Therefore, the practical study of debt is also necessarily a study of money and how it is created and circulates in our modern economy. You will come to learn that without debt, there is no money. As the sociologist Geoffrey Ingham once remarked, “whilst all money is credit, not all credit is money” (2013, p. 128).
In this course, we will explore both credit as money, how it facilitates economic activity, the sources of its creation and distribution in the economy by the state and private financial system as well as private firms, and the ways in which excess credit creation can lead to recession and potential financial crises—the Financial Crisis of 2008 being just the most recent example of a long history of debt crises going to back to before the emergence of capitalism as an economic system. I have strived to make the approach to this course interdisciplinary, drawing on literature and methodology from historians, anthropologists, and sociologists as well as economists. To best understand debt in our modern economy, it is also important to understand how we got to the system we have. That means we will need to engage with a fair amount of economic history. In the process, we will encounter various moral and ethical questions that will emerge again and again throughout the course as we move into the more analytical and empirical approaches to debt.
The economics of this course will be informed by a combination of orthodox and heterodox economic theory, as well as empirical evidence, which will explore the impact of debt and credit at both the macro and micro level—much of literature from scholars that you have likely not heard of before mainly in the heterodox economic traditions (e.g., Marxian, Post Keynesian). These theoretical approaches will rely heavily on balance sheet and sectoral analysis of the economy. I will also introduce you to a more advanced modeling approach than you have likely not encountered in previous courses called dynamic systems modeling which allows us to model stocks (e.g., wealth, debt, etc.) and flows (income, expenditures, credit, etc.). Do not worry, you will not be required to build these models yourself, or do extensive calculations or complex algebra, but you will be introduced to what they are, how they work, and a couple programs (InsightMaker and Minsky) you can use to create them, and, of course, how to analyze them using simulation.
This course will also introduce you to several data sources (listed in this document under the section “Data Sources on Debt and System Dynamics Software”) you can use to analyze debt in the economy. Taking a sectoral approach to debt in the economy, we will examine how debt accumulates and when it can become a problem for: (1) the government sector by developing an understanding of currency issuers vs users, the role of taxes and bonds, and issues of debt sustainability; (2) household consumer debt, including mortgages, and its macroeconomic effects, with special focus on understanding the 2008 Financial Crisis and Great Recession, as well as Student loans and their impact on students, families, and the macroeconomy; and (3) corporate debt and its implications for financial stability and employment. Where relevant, we will also examine the role of debt and credit in the current coronavirus pandemic and economic crisis.
The course will be structured into six modules noted below. For each module, we will have various short written assignments. These will include different formats such as a personal reflection essays on the readings and videos/films assigned. During the analytical unit of the course, module 3, you will be required to analyze actual data and simple computational models. We will cap the course with term papers for which you will be able to work in groups if desired (more on this in the next section). There will be no exams in this course.
In this course, we will explore both credit as money, how it facilitates economic activity, the sources of its creation and distribution in the economy by the state and private financial system as well as private firms, and the ways in which excess credit creation can lead to recession and potential financial crises—the Financial Crisis of 2008 being just the most recent example of a long history of debt crises going to back to before the emergence of capitalism as an economic system. I have strived to make the approach to this course interdisciplinary, drawing on literature and methodology from historians, anthropologists, and sociologists as well as economists. To best understand debt in our modern economy, it is also important to understand how we got to the system we have. That means we will need to engage with a fair amount of economic history. In the process, we will encounter various moral and ethical questions that will emerge again and again throughout the course as we move into the more analytical and empirical approaches to debt.
The economics of this course will be informed by a combination of orthodox and heterodox economic theory, as well as empirical evidence, which will explore the impact of debt and credit at both the macro and micro level—much of literature from scholars that you have likely not heard of before mainly in the heterodox economic traditions (e.g., Marxian, Post Keynesian). These theoretical approaches will rely heavily on balance sheet and sectoral analysis of the economy. I will also introduce you to a more advanced modeling approach than you have likely not encountered in previous courses called dynamic systems modeling which allows us to model stocks (e.g., wealth, debt, etc.) and flows (income, expenditures, credit, etc.). Do not worry, you will not be required to build these models yourself, or do extensive calculations or complex algebra, but you will be introduced to what they are, how they work, and a couple programs (InsightMaker and Minsky) you can use to create them, and, of course, how to analyze them using simulation.
This course will also introduce you to several data sources (listed in this document under the section “Data Sources on Debt and System Dynamics Software”) you can use to analyze debt in the economy. Taking a sectoral approach to debt in the economy, we will examine how debt accumulates and when it can become a problem for: (1) the government sector by developing an understanding of currency issuers vs users, the role of taxes and bonds, and issues of debt sustainability; (2) household consumer debt, including mortgages, and its macroeconomic effects, with special focus on understanding the 2008 Financial Crisis and Great Recession, as well as Student loans and their impact on students, families, and the macroeconomy; and (3) corporate debt and its implications for financial stability and employment. Where relevant, we will also examine the role of debt and credit in the current coronavirus pandemic and economic crisis.
The course will be structured into six modules noted below. For each module, we will have various short written assignments. These will include different formats such as a personal reflection essays on the readings and videos/films assigned. During the analytical unit of the course, module 3, you will be required to analyze actual data and simple computational models. We will cap the course with term papers for which you will be able to work in groups if desired (more on this in the next section). There will be no exams in this course.
Course modules
Module 1: The Origin and History of Debt, Credit and Money
1.1 Alternative stories of the origin of money
1.2 Evolution of consumer credit during the 20th century
Module 2: Theoretical Perspectives of Modern Money, Credit and Crises
2.1 Chartalist and credit theories of money 2.2 Schools of economic thought
2.3 Theories of capitalism and crisis
Module 3: Macroeconomic Analysis of Debt
3.1 Sectoral balances approach
3.2 Data sources of debt
3.3 Dynamic systems modeling with stocks and flows
3.4 Predicting debt crises
Module 4: The Government Sector
4.1 Basics of fiscal and monetary institutions and policy
4.2 Fiscal sustainability
4.3 Government debt and economic growth debate
Module 5: The Private Sector: Households
5.1 The Great Depression vs the Great Recession: The same underlying crisis?
5.2 The macroeconomic effects of household debt burdens
5.3 The global debt transformation: causes and consequences
5.4 Student debt, racial inequality, and the pandemic
5.5 Policy solutions and reform
Module 6: The Private Sector: Non-Financial Firms
6.1 Private equity, leverage buyouts, and employment outcomes
6.2 The rise of ‘zombie’ companies, and the pandemic
1.1 Alternative stories of the origin of money
1.2 Evolution of consumer credit during the 20th century
Module 2: Theoretical Perspectives of Modern Money, Credit and Crises
2.1 Chartalist and credit theories of money 2.2 Schools of economic thought
2.3 Theories of capitalism and crisis
Module 3: Macroeconomic Analysis of Debt
3.1 Sectoral balances approach
3.2 Data sources of debt
3.3 Dynamic systems modeling with stocks and flows
3.4 Predicting debt crises
Module 4: The Government Sector
4.1 Basics of fiscal and monetary institutions and policy
4.2 Fiscal sustainability
4.3 Government debt and economic growth debate
Module 5: The Private Sector: Households
5.1 The Great Depression vs the Great Recession: The same underlying crisis?
5.2 The macroeconomic effects of household debt burdens
5.3 The global debt transformation: causes and consequences
5.4 Student debt, racial inequality, and the pandemic
5.5 Policy solutions and reform
Module 6: The Private Sector: Non-Financial Firms
6.1 Private equity, leverage buyouts, and employment outcomes
6.2 The rise of ‘zombie’ companies, and the pandemic
Main texts
- Debt: The First 5,000 Years by David Graeber
- Debtor Nation: The History of America in Red Ink by Louis Hyman
- Macroeconomics by William Mitchell, L. Randall Wray, and Martin Watts
- Can We Avoid Another Financial Crisis? by Steve Keen
- A Brief History of Doom by Richard Vague
- The Great Debt Transformation by Gregory W. Fuller
- House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again by Atif Mian and Amir Sufi
- Indebted: How Families Make College Work at Any Cost by Caitlin Zaloom
Data sources on debt
Macro data
Micro data
- FRED Economic Data: https://fred.stlouisfed.org
- OECD Data: https://data.oecd.org
- OECD Stat: https://stats.oecd.org
- IMF Global Debt Database (GDD): https://www.imf.org/external/datamapper/datasets/GDD
- Bank of International Settlements (BIS): https://www.bis.org/statistics/index.htm
- Macrofinance & Macrohistory Lab, Jorda-Schularick-Taylor Macrohistory Database: http://www.macrohistory.net/data
- A Brief History of Doom by Richard Vague website, historical data from the book: https://bankingcrisis.org
Micro data
- Federal Reserve Board of Governors, Survey of Consumer Finance (SCF): https://www.federalreserve.gov/econres/scfindex.htm
- Federal Reserve Bank of New York, Center for Microeconomic Data: https://www.newyorkfed.org/microeconomics
Slides
Available for download here.
