If all you knew about Richard Vague was that, before he became a Philadelphia investor, philanthropist, and sponsor of Washington think-tank projects, the affable marketing mogul ran a couple of the nation's biggest credit-card banks, you might expect his book about lending to be a bankers' apologia.
But The Next Economic Disaster - just 56 pages in its second draft, it will be fatter, with appendices, when published next month by the University of Pennsylvania Press - presents a fresh, forceful thesis:
The threat to economies isn't too much borrowing by out-of-control governments. It's the piling-on of private debt by out-of-control banks and borrowers that will most surely lead to economic stagnation.
Like French economist Thomas Piketty's fat case for a wealth tax, Capital in the Twenty-First Century, Vague's slender book piles up data-tracking economic numbers across national economies over time.
But Vague is comparing economic growth not to investment or income distribution, but to debt levels, which economists tend to treat as a symptom, not a cause, of changes in production and consumption.
Vague observes that crushing private debt rises in advance of economic stagnation (unlike government debt, which is stimulative). And that debt tends to rise over time because it is typically refinanced by borrowers who hope to spend more and improve their condition.
And that the current U.S. and European malaise, like Japan since the 1990s, is caused not by a cycle of investment, overproduction, and liquidation, but by a long-term accumulation of private debt. That debt is now at levels we haven't seen since before the Depression and World War II all but wiped out private indebtedness.
There are a few hard roads out of overpowering debt:
War and depression, which wipe out people, property, and their obligations.
Inflation, which wrecks savings and investment and is tough to control.
Voluntary belt-tightening and paydown, which Pennsylvania bankers complained was taking place among farmers collecting royalties in the early Marcellus Shale gas boom, but that is rare across societies, since it tends to mean lower living standards.
Orderly debt-forgiveness programs, like the biblical concept of Jubilee years.
Vague notes that bankruptcy courts allow businesses to cut their debt loads, or convert it to creditor ownership. Many bank critics urged President Obama's administration to make it easier for consumers to write down debt or transfer the underwater portion to lenders as equity. But it's tough
to organize bailouts
for anyone who isn't a big, well-organized industry.
Most important to Vague is enforcing simple rules that would require lenders and loan financiers to set aside a lot of reserve capital in times of rapid loan growth - not just as a hedge against disaster, but to force them to slow down.