Who gets access to ‘good debt’? Experts weigh in
America’s — really, humanity’s — relationship with debt is a long, complicated narrative.
People have long debated what makes debt “good” or “bad.” The definition has changed over time, from ancient Greece to medieval Europe to the turn of the 20th century and into the modern age.
Ancient Roman law, for instance, generally viewed debt negatively, and debtors could even be executed for their failure to repay. Americans in the nation’s early days could be jailed for failing to repay debts — and some argue that debtors’ prisons persist. However, by the 1920s, an industrial America began to embrace debt as a way to access new technologies such as the automobile.
While definitions — and penalties for defaulting — have changed through the years, there is one age-old unifier: Access to affordable borrowing that can help people build wealth has never been equal, experts say.
CNBC spoke with professionals from various disciplines — philosophy, history, theology, sociology, and financial psychology — to discuss who gets to have “good” debt, and why.
Sociologist: ‘The middle class is hit really hard’
Sociologists have a theory known as the “Matthew effect.” It suggests: “To those who have much, more is given, and those who have little, the little they have is taken away from them,” said Frederick Wherry, sociology professor at Princeton University and founder of the Debt Collection Lab, a research initiative that tracks debt collection lawsuits.
In other words, the rich get richer, and the poor get poorer.
People who don’t need debt — they’re not in financial distress and don’t need to borrow to survive — are the ones most likely to have “good” debt, said Wherry, author of the forthcoming book “What We Owe: How Debt Came for All of Us and How We Get Free.” Such individuals — i.e., the wealthy — are also most likely to be surrounded by “good” debt: They’re socialized in environments in which they see other people with it, he said.
The reverse is true, too. “If you’re desperate for debt, you’re likely being exposed to a lot of bad debt,” Wherry said.
This scenario applies to “most of the country,” he said. And it’s not just the poor who suffer.
Low-income Americans typically qualify for financial aid to go to college and have more protections from debt collectors, for example, Wherry said. But the middle class is largely “on its own,” he said.
“The middle class is hit really hard,” said Wherry.
Philosopher: Money’s ‘greatest power’ is paying and preventing debts
Questions of debt are central to philosophical thought dating back to the ancient Greeks, said Graham Hubbs, a philosophy professor at the University of Idaho and an expert on the philosophy of money.
The notion of debt and its ethics are found in the early pages of Plato’s “Republic.”
“At the beginning of ‘Republic,’ the character Socrates talks to this old rich guy named Cephalus,” Hubbs said. “Socrates asks Cephalus, ‘What’s so great about…