Experts Debate Who Gets 'Good Debt' as Affordable Borrowing Remains Unequal

Ancient Roman law generally viewed debt negatively, and debtors could even be executed for failing to repay, CNBC reported. In the early days of the United States, Americans could be jailed for failing to repay debts, and some argue that debtors' prisons persist. By the 1920s, however, an industrial America began to embrace debt as a way to access new technologies such as the automobile.

Frederick Wherry, a sociology professor at Princeton University and founder of the Debt Collection Lab, a research initiative that tracks debt collection lawsuits, described a sociological theory known as the Matthew effect. It suggests that to those who have much, more is given, and those who have little, the little they have is taken away. Wherry said people who do not need debt — those not in financial distress and not borrowing to survive — are the ones most likely to have 'good' debt. The wealthy are also most likely to be surrounded by good debt because they are socialized in environments where they see other people with it, he said. The reverse is true, too: if you are desperate for debt, you are likely being exposed to a lot of bad debt, Wherry said. He added that this scenario applies to most of the country, and that it is not only the poor who suffer. Low-income Americans typically qualify for financial aid to go to college and have more protections from debt collectors, he said, but the middle class is largely on its own. 'The middle class is hit really hard,' Wherry said.

Graham Hubbs, a philosophy professor at the University of Idaho and an expert on the philosophy of money, said questions of debt are central to philosophical thought dating back to the ancient Greeks. The notion of debt and its ethics appears in the early pages of Plato's Republic, Hubbs said. In that dialogue, Socrates asks an old rich man named Cephalus what is so great about being rich, and Cephalus says being rich keeps him out of debt. Socrates then asks whether that is the definition of justice: telling the truth and repaying your debts. Hubbs said that is ultimately not the definition, but it is the starting point for thinking about justice as being trapped by debt. 'Money's greatest power is not buying things, but paying and preventing debts,' he said. Hubbs added that the concept of good debt is linked with the attainment of happiness. People choose to assume good debt because they think it will improve their lives, under the assumption that their income will be sufficient to pay their debt obligations down the road, he said. Conversely, bad debt is linked to stress and anxiety. Good debt is becoming increasingly unattainable as payments on homes and for college rise faster than expected incomes, Hubbs said, making debt onerous or leading people not to assume such debt at all.

Louis Hyman, a political economy historian at Johns Hopkins University and author of Debtor Nation: The History of America in Red Ink, said the early 1900s marked a real shift in Americans' attitudes toward debt. In the early 20th century, U.S. society framed debt as quasi-immoral. 'There basically was a sense that all debt was bad — that if you were borrowing, it meant that you were profligate or broke, and neither one is good,' Hyman said. But a rapidly urbanizing America was becoming more industrial, with more workers earning steady paychecks that made installment lending possible for a growing range of expensive goods, including cars and household items, he said. In the 1920s, there was a broad sense that this was the way of the future and was seen as broadly democratic, Hyman said, because people did not have to save up to buy a radio; they could listen to the radio and hear opera the way a rich man could only hear opera before. That positive view of debt became very broad in the 1930s, according to the report.

Editor's Summary

CNBC reported that access to affordable borrowing that can build wealth has never been equal. Sociologist Frederick Wherry said the wealthy are most likely to encounter 'good' debt while the middle class is hit hard, philosopher Graham Hubbs said good debt is tied to happiness but is becoming harder to attain, and historian Louis Hyman described the early 20th-century shift from viewing debt as quasi-immoral to embracing installment credit in the 1920s. The report drew on experts across sociology, philosophy, history, theology and financial psychology.