The Demonisation of Debt

Don’t look at pornography and don’t get into debt is good advice from any parent, surely? But how much scrutiny can such moral homilies stand? Indeed if there is anything that has unified politicians, economic commentators, and the general public at large it has been the ‘problem’ of debt; and there the matter is left to rest, as if we are at least all agreed on one thing.

But stop! While debt may be inappropriate in certain circumstances, and from an individual perspective can be crippling, we need to look from an economy-wide perspective. Debt is of course just one side of a relationship, but we hear much less about the problem of credit, which is of course its corollary. Indeed the moral homily continues: spend less and save more. But what is saving but being a creditor and therefore being co-responsible for the debt that some other person is carrying. To be more forthright, we should place before our eyes the creditary nature of ‘saved’ money which is an accounting identity made explicit when one looks at bank balance sheets. The very banknote you carry in your pocket is the debt that someone else owes you. How virtuous is that?

Let’s put it another way. When I give classes on financial literacy I ask young people to draw up their balance sheets, as an exercise in trying to understand how a balance sheet shows the way in which we are related to the world around us. I ask them if they are carrying any debt and they normally say they are not. Then we talk about how future liabilities and the things we expect to have to pay for.

It becomes clear that although these may not have been made visible they do amount to quite a lot. For the most part these are things that we cannot avoid paying: tax, rent, insurance, food, medical costs etc. Or to take another example, as citizens of the country we are liable for the national debt, the bank bailout, the maintenance of the military-industrial-medical-educational complex. If a young person were to calculate their liabilities or monetised costs that they cannot reasonably avoid over the course of their lifetime would it still be true to say that they are not carrying debts. To put it another way, the young are already massively indebted, in large measure by virtue of the arrangements that preceding generations have put in place. So how fair is it, how much sense does it make then to turn around and tell them not to go into debt, while not at the same time understanding the dynamics of what one is describing oneself!