The High Cost of a Society Riddled With Debt

Whether for nations, businesses, or consumers, debt is highly marketed and highly utilized. While debt is a core driver of business success, the extent to which it is used is actually extremely harmful and is a market inefficiency driven by government incentives. The choice to embrace debt made by almost every modern nation has trickle-down effects that harm businesses and consumers. 

National debt is almost never an investment. Unlike business debt, it has no clear plan to make itself back. It is justified through promises of various benefits, but rarely if ever do those benefits have a clear path to recovery of the debt. Once the benefits of the debt have been enjoyed, the debt becomes buried in a great heap where it continues to grow. The behavioral economic arguments for this problem with debt are clear. Time inconsistency in favor of enjoyment in the present and a small addition to an already large national debt make adding debt all too easy. Even though a country could still exist without providing whatever benefit debt supports, politicians are able to make it seem like the result of the debt is strictly necessary to the continuation of the country. A nation that could afford free healthcare and high military spending will not quickly let go of these things even when it is no longer able to afford them. National lifestyle creep makes budgeting almost unendurably painful. While the levels of debt of many countries are massive, none of them started by going into a large amount of debt, but rather they became comfortable with a small amount of debt and kept growing. Social welfare theory And Keynesian economics are the primary culprit for the almost universal national over-utilization of debt. They allow scholars and politicians to justify what they know the people already want, which is high present spending and low taxes.

Downstream from government debt is almost necessarily a business reliance on debt. Countries with failing economies will make debt more accessible to businesses in the hopes that they will strike gold and grow their economy from the new corporations that their loose debt policies allowed to succeed. Sometimes real gains are created, but never without great consequences and the nearly guaranteed side effect of inflation. Banks loan freely to businesses in potentially lucrative industries, not because they even think that they will get those investments back from the start-ups, but rather because they hope that one of these companies can multiply enough to offset all their other losses. Lenders steady profits from private consumers and larger businesses let them gleefully push debt on anything with a chance of upside. While this strategy may pay off for banks, it is not the best for the businesses themselves. Having to come up with a more bulletproof record of results and plan for future action to receive access to funds would only increase the percentage of profitable businesses. Businesses starting and failing often has more costs than the livelihood of the entrepreneur. Other investors and competitors are harmed by false signals of success when a poorly performing business is given access to excessively speculative capital. If they are able to sell their idea to venture capitalists or a bank, even without strong results, other businesses will be motivated to act out of urgent desperation rather than thinking through their own best strategy far into the future. While debt can be extremely beneficial for more stable businesses, and has often allowed innovative businesses to thrive, the extent of debt given to start-ups and potentially lucrative companies is consistently a driver of the depths of recessions. The process of measuring risk and loaning to companies is essential for the creation of strong businesses, but the extent to which it is used is far too much. Many businesses that would benefit from growing slowly and using minimal or no debt feel pressured to take loans quickly or sell off shares early, even before they have enough information to know how to use the money. Business owners could benefit if they rejected today’s model of rapid equity losses and inflating the consequences of good and bad decisions through debt.

Consumer debt may not be as numerically significant as government or business debt, but it is extremely effectively marketed, and is at the root of much of American’s dissatisfaction with their personal lives. In an age where almost every salary allows access to housing, food, and the other bare necessities of life, debt offers a false promise of lifestyle elevation. Rather than enduring through times of hardship and saving up for future expenditures, people punish themselves into the future with foolish present decisions. There is almost nothing beyond housing that is worth going into debt for, for any level of consumer. Only a used car for a low income bracket individual to get to work is understandable. A lack of contentment is driving the constant acceptance of debt. Yes, debt is aggressively marketed, but the demand for it would exist even if it were never marketed. The truth of this high demand has been heard, and between credit cards and burrito loans, anything can be accessed in the present and paid for later. The same behavioral principles that make the accrual of national debt easy make it hard to see the full cost of consumer debt. The complex industry of managing and regulating debt uses valuable entrepreneurial resources that could be put elsewhere. High lifestyle expectations, both individually and nationally are justified on the assumption of exponential income growth into the future. This is a highly questionable assumption, and in most circumstances, this will create a period of great pain in which consequences must be paid.

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