I think one of the important dynamics with debt is that it makes the race to the bottom worse because it lets people come up with clever ways of digging the bottom deeper. If there’s some well calibrated amount of debt to take on some people will, by virtue of miscalibration, take on more than that, and others in a position to profit from that will have an incentive to create distortions to make such miscalibration more likely. Even worse than with individuals, this happens at the level of organizations including governments, whom many rely on as monopoly providers of many important goods.
The way to dig the bottom deeper today is to get government bailouts, like bailing out companies or lenders, and like Biden’s recent tuition debt repayment bill. Bailouts are especially perverse because they give people who get into debt a competitive advantage over people who don’t, in an unpredictable manner that encourages people to see taking out a loan as a lottery ticket.
I think one of the important dynamics with debt is that it makes the race to the bottom worse because it lets people come up with clever ways of digging the bottom deeper. If there’s some well calibrated amount of debt to take on some people will, by virtue of miscalibration, take on more than that, and others in a position to profit from that will have an incentive to create distortions to make such miscalibration more likely. Even worse than with individuals, this happens at the level of organizations including governments, whom many rely on as monopoly providers of many important goods.
The way to dig the bottom deeper today is to get government bailouts, like bailing out companies or lenders, and like Biden’s recent tuition debt repayment bill. Bailouts are especially perverse because they give people who get into debt a competitive advantage over people who don’t, in an unpredictable manner that encourages people to see taking out a loan as a lottery ticket.