The Paradox of Debt: A New Path to Prosperity Without Crisis

“Debt is a paradox. It creates and destroys,” contends Vague (The Case for a Debt Jubilee), the former secretary of banking and securities for Pennsylvania, in this dense treatise. Meditating on the contradictory roles debt plays in modern economies, he argues that it’s “required for economic growth” even as it raises the risk of economic crashes. According to Vague, debt in the form of loans effectively “creates” money that in turn provides the incentive to boost supply, expanding the economy. The author cautions that overestimating the return on loans or extending credit to those unlikely to pay it back leads to calamity, a point he illustrates by describing how irresponsible lending practices and unrealistic predictions of the housing market caused the 2008 financial crisis. Vague also explains that “debt creates greater inequality even as it creates greater overall household wealth” because the highest income brackets enrich themselves by lending to lower-income households, driving up total wealth when viewed in aggregate. Vague’s recommendations to grow the economy without creating more debt by increasing debt forgiveness and regulatory scrutiny of runaway growth are well considered, but the reliance on detailed charts and graphs to illuminate complex financial matters will make things difficult for lay readers. This is best suited for the college classroom. (July)