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Coronavirus BounceBack loans and the fall of the Han dynasty

Updated: Nov 24, 2020

An old friend and I differ on why the second imperial dynasty of China came to an end in the third century AD. Being a Confucian gentleman in the old style, an expert on matters Chinese who plays an ancient aristocratic musical instrument, the guqin, he has a nuanced understanding of the many reasons why the Han dynasty fell. Being far less knowledgeable, I take a simpler view.

As research for my forthcoming book Supercommunities, I studied the downfall of many different societies throughout the ages. Whether or not history is cyclical (on balance, it probably isn't, since you can't uninvent printing, radio, and the Internet), there often seems to be a pattern underlying civilizational collapse. Due to conscription, extreme weather, disease, famine, or other things that we might now call Acts of God, ordinary people ran out of money. To pay their taxes, they incurred unmanageable debts, which eventually forced them to sell off first their land then themselves and their families into debt bondage (indentured servitude, to pay off debts through long periods of slave labour). Unsurprisingly, this led to popular unrest - and to popular leaders, who first fanned the flames then overthrew stable government to increase their personal power and wealth.

At the heart of the vicious circle was always the same government failure - to distinguish between different types of debt, and intervene accordingly. The rulers who understood this best were those of Ancient Mesopotamia, who maintained a stable society for thousands of years by boxing clever with citizen debt. In the early city-states of what we now call Iraq, debts incurred by traders to finance new ventures were denominated in silver, whereas debts incurred by peasants to pay their taxes in a bad year were denominated in grain, and both kinds came with a get out clause. Trading debts were non-payable if the venture failed - the temple that lent the money was willing to take the financial risk, since they needed to incentivise merchants to undertake dangerous journeys to other countries in order to bring them raw materials and sell the goods they manufactured. Tax debts, on the other hand, were annulled by rulers whenever they felt the situation was getting a bit dodgy, such as on a transition of power.

By cancelling tax debts, rulers ensure they still had a supply of peasants to conscript for building walls and ditches, and fighting in their armies. If they hadn't done so, all the subsistence farmers would have ended up fighting for local warlords in their rebel armies. Perhaps fears of a Trump-led coup in modern America were not so outlandish, after all.

Which brings me to coronavirus BounceBack loans to small businesses in the UK (and the related loan schemes for larger businesses, CBILS, CLBILS, and the COVID-19 Corporate Financing Facility). How on earth does the UK government expect businesses to pay these back? After society has finally got covid-19 under control, businesses (with the exception of a few covid winners) will be fighting for years to get back to where they were before everything went to hell in a handbasket.

If the government really wants businesses to bounce back, it must take away the added burden of a government loan repayment that is worse than untimely - it could be the straw that breaks the camel's back, and helps turn a recession into a depression. Enlightened rulers throughout history have recognised that citizen debt was a threat to their own stability. It's time for our own government to learn the same lesson.

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