The Profits of Blame

At the New English Review, Dalrymple explores the moral and utilitarian arguments surrounding debt default: Who is to blame? Who should bear the costs? How do we avoid moral hazard? There are no easy answers:
[I]t is better on the whole for humanity to force creditors to accept losses than to allow those same creditors to inhibit overall economic activity, and thus the prosperity of millions, in pursuit of their right to be repaid in full. We cannot let the heavens fall so that their debts might be repaid.
I think we can all see the force of this. None of us would be prepared to undergo very much hardship for the sake of turning someone else’s bad debt into a performing debt.
On the other hand – there is always another hand – it is obvious that allowing people to borrow large sums of money and then write them off is not altogether an incentive to prudence or probity. If everybody could renounce his debts the moment he found it too inconvenient to repay them, the person who repays rather than defaults comes to seem naïve or foolish rather than upright. It would become normal practice to borrow without the slightest intention ever of repaying or meeting obligations. This too would constrict credit.

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