Small World: Forgive us our debts

Henry Precht

Henry Precht

By Henry Precht

BN Columnist

This discussion is about debt, the oppressive burden weighing on all of us, some more, some less.

The same lament could have been chalked up on a cave wall in Neolithic times. Debt is ancient, the experts say, older than money. Obligations to neighbors came first; money later, bringing with it the idea of interest.

That concept got religions involved, possibly because interest represented the rich taking advantage of the needy or earning a profit without labor. For a while, Christians banned interest, relying on Jews for loans, then Italian bankers got into the act and the church hierarchy gave its blessing. Moslems still observe a prohibition against interest. Yet, Islamic banks make loans, terming them investments. An Islamic bank making such an investment earns profits, which are not called interest.

But, I stray. We need to look at how debt figures in modern economies. In a word, it is essential. No government, no business, no individual can enjoy, it is assumed, a fulfilling, steadily improving existence without using assets now that are drawn from confident expectations of greater future income. To live without debt means a conservative existence that changes little, that is tied down to the slow accumulation of capital.

That’s the way my father and many like him lived. He had seen his hard-working father invest his money and borrow in two ventures. Both failed utterly. One time, he recovered; the second time he stayed down. There were also in those distant days national “panics” or periods of depression in which businesses were wiped out. So, my father learned his lesson thoroughly. He took no risks, made us open savings accounts and spend only what we had on what we absolutely needed.

The world changed around him: Saving gave way to spending. Things that once seemed unnecessary became essential. Governments waged costly wars while adopting lavish social programs. The payoff was votes, guaranteed because there was no price tag attached, no demand that expenditures be covered by taxes. More money in the hands of citizens, not governments, Republican dogma decreed, would generate more income from an expanding economy and the government would be made whole even with lower tax rates. Let the good times roll.

But, the day of reckoning dawned. Bubbles burst. In Europe, a half-dozen countries had (will have) to be bailed out. In America, conservatives saw our government — after tax cuts, two wars, expensive programs, plus the bank-led Great Recession — threatened by a debt of almost $17 trillion, about $12 trillion of which is owned by the public, about half of which is owned by foreigners (especially China and Japan). That level, experts say, is not sustainable unless it is reduced by the return of really good times or eroded by high inflation that will devalue the dollar. Critics say reducing the debt level by fiscal austerity will rob the economy and the less fortunate of needed support and impede recovery.

But, that isn’t all. There is also a huge bunch of debt in private hands including:

• Mortgage debt which now totals about $8 trillion;

• Credit card debt of $850 billion;

• Student loan debt of $1 trillion.

The first two figures have been declining somewhat as consumers face a tough economy and reduce spending. Student loans have risen, however, as a college education seems the best assurance of future employment. Graduates with heavy indebtedness unfortunately don’t buy houses or spend much on their credit cards — prolonging bad times.

There we have it — a very, very hard dilemma: Do we cut spending to drive debt down or do we increase taxes on those able to pay? The Republicans will have none of the latter and want more of the former; the president proposes some of each. One way or another, we in Bridgton are going to experience both cuts in services and higher taxes. We’ll get through the siege somehow, and maybe along the way we’ll relearn the old-fashioned rule of being ready to pay for what we spend.

Henry Precht is a retired Foreign Service Officer.