:::: MENU ::::

In Defense of Debt…

by

I was reading the March 15th issue of Time magazine and stumbled across Zachary Karabell’s article, ‘In Defense of Debt.’ The tag line under the title read, ‘Paying off what we owe seems prudent. But it could also wreck America’s economic future.’

What??

I read the article and tried to give Mr. Karabell’s thoughts an open mind – then quickly dismissed his ideology as completely irrational.

My favorite quotes were:

“Even with the U.S. economy weak, the dollar remains one of the few truly safe havens, and that means interest rates could stay low for a very long time, which in turn means that our debts – however big – can be managed.”

And

“Obsessing about the debt is a distraction we can’t afford.”

And my personal favorite…

“The problem isn’t how much debt we’re carrying today; it’s whether the economy of tomorrow will be able to justify it.”

When I searched to link the article to this post, I found a follow up article by Mr. Karabell defending his position once more after a less than positive response from Time readers. He said, ‘People don’t see straight when discussing this issue.’

Based on the overwhelmingly disapproving response, it’s Mr. Karabell who may not ‘see straight when discussing this issue.’

I’d recommend reading the Time article… just for the reader comments at the end.


15 Comments

  • Reply Nichole@40daysof |

    Thanks for the heads up. I couldn’t stomach reading the follow up article. What a moron! So not concerned over my lacking a subscription to Time right now. It is heartening to see how many of those who commented disagreed with the article.

  • Reply Stephan |

    Although I agree that our debt is something we should be working to reduce, the author does make some valid points about how we as a society are overblowing this problem. If the economy was running smoothly right now at a 4% growth rate, no one would be mentioning the national deficit. Also, the fact that we are not spending more than we did 30 years ago to service debt when adjusted for inflation is a telling sign that all we did was take advantage of the low borrowing rates. I am not saying that we should ignore and keep adding to our debt, but I do believe the threat of a global exodus from the dollar and the collapse of the American economy is a bit premature and just a little paranoid.

  • Reply George |

    I don’t know if I agree with you completely Stephan. I think the problems we have seen in the past 30 years with over-consumerism are a big part of the problem. Sure, people will always want the next greatest thing but I think that our society is extremely focused on material possessions now more than ever. It seems as though we cannot rely on consumers to make proper decisions in regards to spending and lifestyle… a great example is the housing crisis in the US. People always want to buy what they cannot afford.

    I do believe that the exodus from the US dollar is premature, but again, people run like lemmings as soon as Wall Street says “The sky is falling!”

    Just my 2 cents on the matter 🙂

  • Reply Honey |

    I think Karabell is making a good point. In dollars, yes, our debt’s higher than it’s ever been. As a percentage of GDP, it’s about half of what it was in the late 40s and early 50s after WWII, and we recovered just fine from that (in fact, it was that spending/deficit creation, combined with the war, that ended the Great Depression – so actually our situation with a war in Iraq and Afghanistan and the spending/deficit creation we are doing now is historically proven to help the economy).

    He’s not saying that we should necessarily borrow more (though he did say that we *could* if we wanted to, which many of the commenters seemed to interpret as saying that we should) – he’s saying we’ve got bigger fish to fry at the moment. And I agree.

  • Reply Abigail |

    Anyone about to comment: READ THE ARTICLE.

    Beks, I love you but I have to cry foul: You make it sound like this guy is talking about personal debt, not national debt.

    I think there are some good points in this piece, though I do wish our national debt were a lot lower.

    For example, the fact that half of our “debt” is owed to ourselves? And another quarter to the taxpayers? That means that all those terrifying numbers — while still scary — are about 75% home-based. So we’re not about to have states annexed as collateral or anything.

    Or the fact that the cost of carrying debt is pretty low? That may seem moot, but it’s a big deal when the U.S. infrastructure is so shoddy. We have some of the worst transportation in the developed world.

    If the debt isn’t as urgent as it is made out to be, why shouldn’t we take some time to invest in the infrastructure upgrades, rather than throw it all at debt?

    It would create jobs, which would stimulate the economy further. And more jobs means a better chance at getting taxes, which will help the government have money to function.

    Yeah, I don’t like debt, but sometimes the better choice is to make an investment in our future.

    How do I know? Well, we owed about $7,000 on our cards. The only problem? Seattle humidity meant my husband’s skin condition kept him barely able to wear clothes. (Lots of days, it wasn’t even an option.)

    That’s a pretty big impediment to earning a living, and he was constantly getting MRSA infections, which are very serious, because his skin was open all the time.

    So we bit the bullet and moved to Arizona, where his skin has historically done better. He’s still looking for a job, but his skin is the best I’ve ever seen it. It looks like it did in Washington when he was on the highest level of steroids.

    Also, the cost of living is lower here. So we’ve been able to go from a high of $12,000 (shortly after we moved here) to under $5,000 in about 6 months. All while earning under $40,000 a year!

    He’s still looking for a job, of course, so things may get dicey soon, as his unemployment is about to run out. But now he at least has the choice to get some job, any job, if he needs to.

    If we were still in Washington, he’d be running out of unemployment and still unable to work.

    Sometimes you really do have to spend money to make money. As counterintuitive as that may be.

  • Reply Nichole@40daysof |

    I did read the article and I think Beks did as well. Our national debt is a huge problem. And will continue to be, obviously, if the majority of people commenting on a personal finance get out of debt blog, don’t think it’s a big deal.

  • Reply Honey |

    @Nichole@40daysof: Unfortunately, the macroeconomics of running a country are in many ways NOT AT ALL similar to personal finance, as much as some conservative politicians like to scare and manipulate us by drawing those analogies because they sound believable.

  • Reply Nichole@40daysof |

    Honey,
    I agree with your statement. That doesn’t mean we don’t need to be worried about it. And try to get it lower. There aren’t any economists that I’ve heard interviewed in the last year on NPR (not talk radio) who think that our high and going higher percentage of debt vs. GDP is a good idea. And I think all politicians try to scare and manipulate with this issue. If Republicans were in control right now, the Democrats would be pulling the same crap.

  • Reply Honey |

    I also agree it IS worrisome and we SHOULD get it lower – though not at the expense of creating a double-dip recession (which is what makes it all such a challenging balancing act).

    I also agree that if the Republicans were in control, the Dems would levy the same charges at them – ironically, this suggests that the Republicans would be running up the deficit too, if they were in charge, because in many ways it’s all we can do at the moment. Both political parties are full of crapola, but fortunately or unfortunately, since the Republicans are NOT in charge it’s really easy for them to criticize because their hands are tied. It’s why there’s always a retrenchment after one party has taken control so definitively. I’m super interested in elections….

  • Reply Beks |

    Abigail – Sorry, I didn’t intend to mislead. The article IS about national debt but I still can’t get behind the idea of borrowing money. If I have to live within my means, why shouldn’t my government?

  • Reply Stephan |

    Well beks you cant expect the government to handle finances the same as you do, because they have millions of other things to consider when making their financial decisions, including world wide economics. You couldnt care less what your neighbor did with his money, but the US has to care if any economically important coutnry were to default on its debt. As far as politics, well said honey, neither party can do anything substantial because all they do is bicker and pick sides, no one works together to solve anything, and the insistince to stick to ideological convictions has led to our country splitting in 2. Really is sad what has happened since Clinton left office in 2000.

  • Reply The Financier |

    The reality is that there are times when debt makes sense.

    If I lent you a million dollars at 3 percent interest, and you could start a business with it that made a profit of just $40,000 a year (after all costs including servicing the debt), you would come out ahead.

    The government is borrowing money because it needs to and it can. If the alternative is throwing millions more out of work, I’ll take more debt.

    Of course, they should raise taxes on rich bastards like me, too, but don’t hold your breath on that one. Ending the wars would take a huge chunk out of the deficit, too.

  • Reply Wendy |

    I agree with you Beks,

    If we require people to stay out of debt, well outside of bankruptcy. Why does the government get away with unfunded mandates and trillions in debt? I think the government could have done more for people by cutting everyone a check for 20,000 then doing the bailouts. It would have restored people from individual debt allowing them to spend again.

  • Reply Nicole |

    Ugh. Right so this is an old post… but…
    Personal debt is nothing like national debt. If you try to limit debt during a recession you end up in a downward spiral that makes the debt much worse and you never recover. It is called “Hooverism.”

    The trick is that we need to spend money when times are tight and REPAY that money when times are good. The US was very good at that second part until Regan, who realized that you’re much more popular when you both spend and don’t tax. Consecutive presidents followed his lead.

    Countries can spend because they are around forever and they’re who decides the value of money– they can inflate to make their debts smaller. A little inflation is good. A lot leads to instability. The countries that are best for taking on debt are the stable ones that should be around forever.

    Instead of complaining about debt NOW, we need to put automatic repayment brakes on the economy in the future. We need sunset legislation after the economy meets benchmarks to get rid of tax cuts and lower spending. But we can’t do that NOW. When times are good people demand tax cuts (like the Bush tax cuts), but that is when they need them least and that is when the economy can afford to pay off recessionary debt.

So, what do you think ?