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The Politics of Debt

All presidential candidates jettison long-held beliefs in exchange for political gain. One need look only as far back as the last election, when Barack Obama professed opposition to gay marriage, despite being on record as a proponent as early as 1996, and John McCain came out against the DREAM Act -- legislation he'd actually cosponsored two years earlier.

Mitt Romney is equally prone to calculated cowardice (Jon Huntman's description of him as a "well-lubricated weather vane" was apt), but Romney alone among his competitors takes a stance that effectively repudiates the ethos by which he built his considerable fortune. The man who made untold millions at Bain Capital, a wildly successful leveraged buyout firm, is now so staunchly against debt he likens it to drug addiction. In fact, he argues, preposterously, that the government can't afford the fiscal burden of Planned Parenthood: "[I]f we do not act now, the irresistible mathematics of debt will soon lead to unimaginable peril."

The cognitive dissonance and/or cynicism is overwhelming. Observes Jesse Eisinger: Romney is "running away from his entire career in business."

Are there private equity executives anywhere in the world who would counsel their companies not to borrow at such extremely low rates? I haven't had the privilege of meeting one. Their mantra is, borrow now, for tomorrow the Mayans might turn out to be right. Few indeed are the companies that could borrow that cheaply and not make some kind of return on essentially free money.

Romney's road to Damascus, strewn with the bodies of former AMPAD employees, occured only after he fled the private sector, naturally. This would be laughable but for reality: anti-debt talk may be a winning message among some voters. In a recent Gallup survey of Americans' economic worries, the national debt and federal budget deficit ranked below jobs but way ahead of ahead of the housing crisis, healthcare, Social Security, and any number of other concerns. That's just the kind of misplaced priorities the Romney and his colleagues hope to exploit. He blatantly misrepresents the utility (indeed, the necessity) of debt because a) he doesn't want primary voters to know that debt, for lack of a better word, is good and b) he can.

In Romney's telling, all debt is irresponsible. He conflates debt accrued by individuals with that amassed by the government, so that buying unaffordable, discounted gifts for the holiday (bad debt) is as devastating as infrastructure spending (good debt). This enables the comically unnuanced proclamation that debt is a "moral crisis."

Jared Bernstein, in his brilliant essay, "Rethinking Debt", shows why this language is so pernicious. He notes that "debt has obviously been an economic mainstay since before money existed—members of bartering economies constantly owed one another goods and services. Without debt, very few people would own homes or go to college." Indeed, the number of homeowners with mortgages is triple the number who own their property free and clear [pdf].

And yet: we often vote against our interests, so millions of college graduates and homeowners who benefit from debt don't see this opposition as a deciding factor. Others simply don't know what they don't know. Bernstein suggests that politicians take the lead via a "debt sobriety pledge," to distinguish "when borrowing is useful and productive and when it’s reckless."

For governments, that means getting past irrational or ideological fear of borrowing, especially at a time like the present. For households, it means not substituting unsustainable borrowing for income growth. For financial markets, it’s recognizing the predictable tendency toward instability and the necessity of regulation.

Well, from Bernstein's lips to voters' ears. Alas, my expectations are low; so long as voters believe that debt is a big problem, it's not in the interest of politicians to dissuade them. Or as Upton Sinclair once said, "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"