When is Debt Good?

While one of the main talking points of Schiffgold is the great damage of national debt, there does exist a positive place for debt in the world. National debt is a problem because it forces the people to bear a risk that they have no desire for or understanding of. The people’s lack of care paired with the government’s incentives towards ever increasing spending mean that debt will balloon infinitely whether or not that debt actually creates anything of value. This is the key distinction that creates the difference between good and bad debt, both in individual lives, business settings, and governments. Even in government and business, this bad debt can be loosely characterized as similar to consumption debt, and good debt can be characterized as an investment. The greatest trick of that dastardly fellow J.M. Keynes was to convince us that even national debt of the sort analogous to a 41% apr loan on a 2028 Ford Raptor with custom rims was an investment. He created a causal link between undiscriminating spending and long-term national success. Good debt has a reasonable hope of making itself back, and bad debt arises from indulgence or necessity, and only decreases long-term wealth.

Even as long ago as the book of Leviticus was written, the dangers of consumption debt or “bad debt” were warned against. Farmers and the poorest of the poor were often put into debt at exorbitant rates of interest merely to avoid starving when their crops failed or they weren’t able to find anything to eat. Debt served as a sort of hope for the desperate and this role of debt is alive and well today. Consumption debt is at an all-time high, and it shows no signs of slowing down. This debt is rarely of necessity and is more often from indulgence or a lack of understanding of the consequences of debt. In the middle ages, money was referred to as barren, and this understanding accounted for an important truth. Particularly outside of the capitalist systems of the last few hundred years, debt historically skewed towards more of what we would today consider “bad” debt, which would evidence this understanding of money as barren. Money only begets money when it is actually used wisely to create something novel in the world. Many of  the beneficial business use cases for debt were done through joint risk sharing, a sort of prelude to the equity markets of today, as that was allowed in traditional Jewish and Christian communities. 

A long historical case against consumption debt as well as the recent effects of national debt provide a compelling argument for the dangers of debt that cannot pay itself back. While Keynes thinks that shooting out spending into the world indiscriminately can create something valuable, he rejects thousands of years of tradition as well as the most basic observations of lenders, who typically try to lend to people who can pay them back. Giving without expecting to receive is a positive moral, but it must be recognized for what it is rather than justified through poor economic policy. Bad debt is bad simply because it attempts to distort the basic laws of the universe and expects to receive without giving. This is a poor expectation to have in personal life, and even worse in a government. National debt with no hope of gaining itself back will only continue to devalue our currency and make our government beholden to someone or something other than the people. Debt perpetuates itself through the ever increasing cost of interest and the national destabilization it inevitably creates.

While good debt is more common in business context than either government or individual situations, it still exists in both situations. If we posit that good debt requires a reasonable chance of making itself back, and adjust this chance based on the appropriate risk aversion of the entity, then some forms of personal and governmental debt could actually be greatly helpful. For example, a small country with minimal cash resources uniquely positioned to exert international control in a specific commodity market could benefit from a loan. They could pay it back in a short period at a high probability, and benefit their people for years to come. An intelligent young person who has been accepted to an elite university could quadruple their lifetime earnings if they take the momentary debt load, study hard, and enter a high paying profession. In the present, the United States government may have some good debt, but it is a rounding error in comparison to the systematic domination of debt that will only perpetuate itself. However, good debt exists, and we should never settle for the unproductive utilization of debt in our government and society to increase present consumption with no hope of future benefit.