Mom, Romney, Mammon: Some Doubts about the Debt

15 October 2012

When I graduated from Amherst College in 1978, I was $3,000 in debt, and deeper than that in despair about it.

The $3,000 seems laughable now. But in our family–poor New Hampshire farm stock, abandoned by our father and hounded by his creditors–debt was a moral issue. My mother and older brother, who had not gone to college, expressed a great deal of pride and hope in me, and encouraged the student loan. But our guilt and shame at “going into debt” was nothing to laugh at.

Our Puritan attitudes made even all-American activities like buying a house or financing a new car problematic. Our moral estimation of debt’s evils was typical. Laban Todd, the farmer I worked for (a dollar fifty an hour, cash) used to joke, if we had to wait for three cars to pass before we crossed the road with a load of hay, “It wouldn’t be so crowded if people could only drive cars that were paid for.”

The moral equivalence of debt with sin goes way back. In our little white church, we asked Our Father to “forgive us our debts, as we forgive our debtors” No weaseling about “those who have trespassed against us” for us. We asked for a cash payback: a marvelous idea, but even a child knew, unlikely. Debt, like sin, would be always with us, unfortunately.

We were misled. No doubt, debt remains ubiquitous, but it seems less like a sin these days. Debt is the lifeblood of the economy–or, if you prefer a moral echo in your metaphor, its daily bread.  Debt feeds the global economic system of the 21st Century and sustains it. Debt is, in fact, what creates money, according to Philip Coggan, the author of Paper Promises: Debt, Money and the New World Order (2012). Money is debt.

Forgive me, Mom: but debt is a Very Good Thing.

Forgive me also, Philip Coggan, for falling into the trap you laid, “of making blanket statements, along the lines of the comic history book 1066 and All That,” saying debt is Good Thing, thrift is a Bad Thing.

“History is what you remember” was the fundamental lesson of that delightful book. And what you remember, what you believe, what you trust matters, in matters of money. Coggan’s book is all about confidence, peopled as it with the Wizard of Oz, Peter Pan kept aloft by audience belief, and Confidence Fairies. I could sum up Paper Promises with a paraphrase from 1066:  “Money is what you believe it is.”

Governments and businesses, colleges and universities, hospitals and health insurers, auto manufacturers–any entity with any capital has figured out that debt can do a world of good. Some very smart people built an entire “financial services industry” on this knowledge, including the “private equity” business, where Mitt Romney grew rich.

“Mitt Romney has spent his career executing turnarounds in the private sector, the Olympics, and state government.” That’s his official position, as stated in his campaign literature. So’s this:

“While getting the federal debt under control will be a long and arduous task, the first step toward recovery is admitting we have a problem and refusing to allow any more irresponsible borrowing. We must live within our means, spend only what we take in…”

This isn’t logic, it’s a scolding: “The debt is immoral,” Romney said in debate, but  I can hear Mom’s voice. You’re spending more money than you have, and that’s a Bad Thing. Romney’s latest advertising features a Mom and a baby worrying about “Obama’s debt,” but not a word about where, say, they might want to invest it. like a school or a hospital.

This is an appeal to morality, not economics. Its advantage is that it avoids any specific plan.

But Romney knows better. Debt is not immoral, Mr. Romney, and you know it. You have made a lot of money in financial services:  I don’t pretend to understand finance–least of all, the complicated leverages and hedges practiced by private equity experts like Bain Capital.

But I know this much: private equity “executes turnarounds” by buying a business–with borrowed money–expecting that the company will increase in value. That’s no more immoral than my Mom  investing $3000 she didn’t have in my college education, hoping that I would increase in value. (I did.) And if you and Mom and l can borrow without moral turpitude, certainly the United States of America can.