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What's so great about Debt: The first 5000 Years? I've tried to read it but had to abandon it after first two chapters as it seemed way too emotionally pushy fo

What's so great about Debt: The first 5000 Years? I've tried to read it but had to abandon it after first two chapters as it seemed way too emotionally pushy for my tastes. It gives many examples of poor indebted countries and demonizes money lenders, but nowhere in these lines does author elaborate how would those countries fare if they weren't offered credit in first place. OK, I get it that lenders impose harsh conditions, but why is it in any way OK to not repay the debt, and in turn not receive any credit offer in future as it becomes clear that you won't repay? People keeps recommending the book but I found its arguments overly populist and ignoring obvious counterarguments.

vlovich123 5y ago
My impression is that usury actually inhibits economic development because you’re stuck paying the interest instead of investing in your future. Lower interest rates encourages more risk taking economic activities. Sometimes those risks don’t pan out, but, if you believe that overall your economy will prosper, lower interest rates ensure that proceeds from risks stay more with those generating the activity rather than the lenders themselves. Liquidity is important but not as much value creating (if everyone loans the other person $5, there’s a lot of “economic activity”, but nothing of value has been created in that fake scenario). That’s simplistic of course and liquidity itself can be value-generating if there’s intention behind it (ie vetting that the liquidity generated is going to an enterprise that will likely yield net returns overall for some reason). That’s also why there’s bankruptcy protection. Sucks for the lenders that their gamble didn’t pay off but generally they’re able to take a loss and their other investments can balance them out. Plus bankruptcy protections apply to them to if they overextended themselves or didn’t manage the investments. The point is that anyone can suffer an economic hardship but that doesn’t mean society should strive to create punishing conditions if you are unlucky (or, in most payday scenarios, just start off poor). Of course some people will abuse the system. There are abuses happening by lenders too. Economic policies around this though can only work at the macro scale, so you find other ways to mitigate the problems through legal structures. I think there’s this unhealthy association between lendees not paying and it somehow being a moral failing on their part. No. It’s the fault of the lender for not vetting their investment properly. Sure they should be allowed some attempt at recollection but there need to be strong usury protections too (if you want to allow high interest rates in your economic region, then high usury rates should be pared with much easier ability to limit recovery after some limit is collected. If you think about it, in payday scenarios, the successful “investments” on the part of the lenders (ie the people actually making good on the payments) are subsidizing the lenders loans to those that can’t pay. It’s a vicious cycle frequently for those involved because the loans aren’t actually generating economic value and are really being used just to help people get by. High interest loans really need to be restricted to risky economic investments (starting a business of some kind) or those with the resources that they could pay it back and just have a short liquidity issue. This $500 @ 30% interest to fix your car that’s your only mode of transportation to/from work or $1000 to go to the doctor seems seems like not a useful application. It’s a non-economic need that person has and there’s not really any likely realistic scenario where those loans would have a net positive impact on the economy. Forcing the area to invest in useful public transportation solutions and safety net for medical care would return far more value to the economic prosperity and social stability/welfare of the area.
- discreteevent 5y ago
  In "The Economics of Belonging" Martin Sandbu makes the argument that it should be more like venture capitalism. You provide a loan and get some of the upside if it works out but if it doesn't then you share the loss. It would at least keep people more honest.
  - vlovich123 5y ago
    I don’t think one approach or the other works. Interest-based loans are the equivalent of hedging your risk in a financial investment. That’s like saying you should remove financial instruments that allow for that when you make stock investments. That is a position one could take, but I feel like allowing for hedging is smart (& besides there’s all sorts of ways people can create contracts to hedge risks that are impossible to regulate anyway). For many investments, interest-based investments seem to make more sense to me. For example, investing in a restaurant is not an investment that works out in favor of the VC model unless you want to be inundated with low-cost generic options that can scale to every market even more than we are today. That’s also why you have collateral in such investments so that the lender has ways to recoup their investment even with uncooperative lendees. I think the world is complex & we have different investment models to account for that complexity. I’m skeptical that any one hammer will somehow solve all problems. It’s all trade offs in the end, no?
- inshadows 5y ago
  Thanks for long reply. But you mostly just summarized what I felt about the first 2 chapters in your own words. You say > I think there’s this unhealthy association between lendees not paying and it somehow being a moral failing on their part. No. It’s the fault of the lender for not vetting their investment properly. You know what? If that's how I'm going to be treated as money lender then screw it, I'm not lending anybody. They need money to jump start their economy? Screw them. If I'm supposed to invest in detailed research with zero return, I'll be at loss in the end even if the huge risk turns out in my favor. I'm keeping my money safe, let them starve! Now obviously I'm not seriously that evil, but you get the point. When there's no protection for money lenders, when society treats them as evil (as this book does), they're not going to lend anybody, and poor economy won't have the capital to build from in first place. And then money owners will be vilified for hoarding money! You can't really win this game unless you give away money for free, can you? EIDT: I agree that usury is evil. Obviously investor protection should go only so far, but shifting all blame for failed projects on money lenders is just wrong. Contracts should be obeyed.
throw0101a 5y ago
> but nowhere in these lines does author elaborate how would those countries fare if they weren't offered credit in first place. For one, in many/most economics textbooks you have the story (fairy tale?) of cultures going from barter to currency (special rocks, shells, etc). There is no sociological or historical record of a culture doing this. The point is reiterated in Money.
deleted 5y ago
[deleted]

vlovich123 5y ago

My impression is that usury actually inhibits economic development because you’re stuck paying the interest instead of investing in your future. Lower interest rates encourages more risk taking economic activities. Sometimes those risks don’t pan out, but, if you believe that overall your economy will prosper, lower interest rates ensure that proceeds from risks stay more with those generating the activity rather than the lenders themselves. Liquidity is important but not as much value creating (if everyone loans the other person $5, there’s a lot of “economic activity”, but nothing of value has been created in that fake scenario). That’s simplistic of course and liquidity itself can be value-generating if there’s intention behind it (ie vetting that the liquidity generated is going to an enterprise that will likely yield net returns overall for some reason). That’s also why there’s bankruptcy protection. Sucks for the lenders that their gamble didn’t pay off but generally they’re able to take a loss and their other investments can balance them out. Plus bankruptcy protections apply to them to if they overextended themselves or didn’t manage the investments. The point is that anyone can suffer an economic hardship but that doesn’t mean society should strive to create punishing conditions if you are unlucky (or, in most payday scenarios, just start off poor). Of course some people will abuse the system. There are abuses happening by lenders too. Economic policies around this though can only work at the macro scale, so you find other ways to mitigate the problems through legal structures. I think there’s this unhealthy association between lendees not paying and it somehow being a moral failing on their part. No. It’s the fault of the lender for not vetting their investment properly. Sure they should be allowed some attempt at recollection but there need to be strong usury protections too (if you want to allow high interest rates in your economic region, then high usury rates should be pared with much easier ability to limit recovery after some limit is collected. If you think about it, in payday scenarios, the successful “investments” on the part of the lenders (ie the people actually making good on the payments) are subsidizing the lenders loans to those that can’t pay. It’s a vicious cycle frequently for those involved because the loans aren’t actually generating economic value and are really being used just to help people get by. High interest loans really need to be restricted to risky economic investments (starting a business of some kind) or those with the resources that they could pay it back and just have a short liquidity issue. This $500 @ 30% interest to fix your car that’s your only mode of transportation to/from work or $1000 to go to the doctor seems seems like not a useful application. It’s a non-economic need that person has and there’s not really any likely realistic scenario where those loans would have a net positive impact on the economy. Forcing the area to invest in useful public transportation solutions and safety net for medical care would return far more value to the economic prosperity and social stability/welfare of the area.

discreteevent 5y ago
In "The Economics of Belonging" Martin Sandbu makes the argument that it should be more like venture capitalism. You provide a loan and get some of the upside if it works out but if it doesn't then you share the loss. It would at least keep people more honest.
- vlovich123 5y ago
  I don’t think one approach or the other works. Interest-based loans are the equivalent of hedging your risk in a financial investment. That’s like saying you should remove financial instruments that allow for that when you make stock investments. That is a position one could take, but I feel like allowing for hedging is smart (& besides there’s all sorts of ways people can create contracts to hedge risks that are impossible to regulate anyway). For many investments, interest-based investments seem to make more sense to me. For example, investing in a restaurant is not an investment that works out in favor of the VC model unless you want to be inundated with low-cost generic options that can scale to every market even more than we are today. That’s also why you have collateral in such investments so that the lender has ways to recoup their investment even with uncooperative lendees. I think the world is complex & we have different investment models to account for that complexity. I’m skeptical that any one hammer will somehow solve all problems. It’s all trade offs in the end, no?
inshadows 5y ago
Thanks for long reply. But you mostly just summarized what I felt about the first 2 chapters in your own words. You say > I think there’s this unhealthy association between lendees not paying and it somehow being a moral failing on their part. No. It’s the fault of the lender for not vetting their investment properly. You know what? If that's how I'm going to be treated as money lender then screw it, I'm not lending anybody. They need money to jump start their economy? Screw them. If I'm supposed to invest in detailed research with zero return, I'll be at loss in the end even if the huge risk turns out in my favor. I'm keeping my money safe, let them starve! Now obviously I'm not seriously that evil, but you get the point. When there's no protection for money lenders, when society treats them as evil (as this book does), they're not going to lend anybody, and poor economy won't have the capital to build from in first place. And then money owners will be vilified for hoarding money! You can't really win this game unless you give away money for free, can you? EIDT: I agree that usury is evil. Obviously investor protection should go only so far, but shifting all blame for failed projects on money lenders is just wrong. Contracts should be obeyed.

throw0101a 5y ago

> but nowhere in these lines does author elaborate how would those countries fare if they weren't offered credit in first place. For one, in many/most economics textbooks you have the story (fairy tale?) of cultures going from barter to currency (special rocks, shells, etc). There is no sociological or historical record of a culture doing this. The point is reiterated in Money.

deleted 5y ago

[deleted]