x Abu Dhabi, UAESaturday 22 July 2017

A modest proposal: pay off all American mortgages

It would be so much simpler just to tear up contracts, give everyone their houses, and let things carry on as normal.

I was sitting in the sauna at the Sheraton Hotel in Addis Ababa when I realised that Ethiopia's economy was doomed. I had just heard a speech from Joseph E Stiglitz, the US economist, about Ethiopia's growth prospects. He had fine and noble words to say about Meles Zenawi, the prime minister, and the country. "Ethiopia has one of the most egalitarian distributions of income in the world," said the professor. Nobody could argue with that; just about everybody was poor. But my neighbour, sweating away in the corner, did not see anything positive in the fine words.

"The economy is fated and will never grow, we are reliant on handouts," he said. "Do you know that nobody can own land in Ethiopia?" This struck me as rather implausible, almost absurd. But as soon as I had put some clothes on, I checked. And it was true: nobody can buy land or houses. This places power firmly in the hands of the government and precludes any farmer from caring about their land, because there is the constant threat that it might be taken away. Likewise, nobody in their right mind would build a factory because it, too, might be sequestered by the authorities.

This lack of infrastructure and investment gives Addis Ababa some of its charm. There are goats running up the main streets. And its distinctive character, for slums are the first things you see as you look out of the bedrooms of the most expensive hotel in Africa, built by a member of the Saudi royal family whose mother is Ethiopian. On the plane home to England I sat next to a charming man in his 40s. Educated at a British boarding school, he spoke beautifully, better than any Englishman I had ever met, perhaps because his parents were Indian.

He told me that he was planning to build a plastics factory in Addis Ababa. "You know that you can't buy land there," I said. He did know, but he and his Indian business partner had been given a plot of land by the government and soon they would be making plastic buckets for the Ethiopians. "It's a low-tech business," he explained. "But profitable." I didn't doubt that. He was nicely dressed in a double-breasted blazer and we were sitting in business club, me courtesy of the World Bank, which likes its consultants to be able to stretch their legs after their arduous assignments, but he presumably on the back of the sales of millions of plastic buckets in Nigeria, where he had another factory.

A shared appreciation of Scott Fitzgerald's Pat Hobby stories means that we are still in touch four years later. But I was alarmed by his latest message. "Just back from Addis yesterday," he wrote. "The country has completely run out of foreign exchange, and my factory, which after one year of operations has become market leader, may have to close because of a lack of dollars to import my raw materials.

The Ethiopian government has become too reliant on foreign aid, and those inflows have dried up as western governments have their own economic problems." Being the darling of the West is no good in a downturn. Never mind donor fatigue: now it's all about donor poverty. The US is not going to send Food Aid and infrastructure financing when it needs all its money to bail out its banks. Could Ethiopia's problems have been resolved by allowing its citizens to buy land and property? I believe so, but clearly ownership is not everything. The current financial malaise in the US was prompted by an initial desire to empower its citizens.

Once they had houses, bankers reckoned, homeowners could be persuaded to borrow even more, and now had an asset to secure the loan. Their desire to lend to allow people to buy these homes - most of whom should not have been given a loan to buy a carpet - and their ability to repackage the debt so that somebody bought it, has cost trillions. It has been calculated by Bloomberg that the latest US government stimulus package brings the total commitment to more than US$10 trillion (Dh36.73tn).

This is a decent sum of money. When stacked, the number of dollar bills required to represent the US debt would be about 1,1 million kilometres high. This is three times the distance to the moon. Laid end to end, the dollar bills would measure 1.66 billion kilometres, which would take you all the way to Saturn if you wanted to go there. More relevantly, this would pay off more than 90 per cent of the nation's mortgages.

In this age of debt and stimulus packages and confusion as to who is to blame - the bankers or the politicians or the regulators or the journalists or even the idiots who were dumb enough to borrow money that they couldn't repay - wouldn't it be an idea to sidestep the bailout plans and just pay off every American's mortgage? Wouldn't that have the same effect as a massive stimulus plan? "We have seen money go out the back door of this government unlike any time in the history of our country," said Senator Byron Dorgan, a Democrat. "Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?"

Nobody knows. Which is why it would be so much simpler just to tear up the contracts, give everyone their houses, and let things carry on as normal. A bit unfair for those who don't own homes? Don't worry, I am sure we can fix them up with a loan. rwright@thenational.ae