This week’s Economist magazine contains a thoughtful and provocative special report on debt, arguing that “for the developed world, the debt-financed model has reached its limits.” While the report is beautifully conceived and written—what else would we expect from The Economist?—it is also off base.
Debt per se is not a social, moral or economic evil. Rather, it is the uses to which borrowed capital is put that can cause problems. Borrow money to build a more productive factory or develop a better mousetrap and the world will reward you handsomely; but borrow money to play the slots in Las Vegas, and your creditors are apt to become deeply distressed. Borrowing and lending money to make sound long-term investments is and ever shall be good practice; not so borrowing and lending for short-term gratification or speculation.
Corporate leaders in developed nations are failing to deliver the all-important message that long-term investment in productive assets remains both necessary and possible. We wallow in pessimistic assessments of our economic prospects, accepting the media’s dyspeptic view that nearly every nation this side of China is doomed to decades of stagnation and declining living standards. Corporate and governmental leaders need to fire up their speechwriters. Our institutions have not lost the capacity to control their own destinies. They’ve merely forgotten how to do it. Investing and working toward solid, long-term ideas and objectives is still the best way forward—indeed, it is the only way.