Saturday, October 29, 2011

Debt Obsession XXIX

I continue to be fascinated with how debt has managed to repeatedly get us in trouble, ever since its invention 5000 or so years ago.  As usual, these ruminations are inspired mainly by David Graeber's Debt: The First 5000 Years.

Great philosophers from Plato and Aristotle have weighed in, as have most of the world's major religions, but we keep on making the same mistakes.  Ultimately, I think, the blame must lie with human nature.

We are incorrigible and unreasonable optimists.  Study after study shows that humans overestimate their skill and talent in almost every aspect (see, e.g., Daniel Kahneman's new  book: Thinking, Fast ans Slow).  Consequently, it is completely natural that for all of human history, optimistic borrowers have borrowed more than they can afford to pay and optimistic lenders have lent to those who can't repay.

The fact that we have made it more difficult to sell the wives and children of defaulting debtors has made some of the more egregious practices obsolete, but age of the recklessly borrowing state has raised the stakes.