Noah identifies his biggest problem with the Folk Theory of business cycles:
The story the Folk Theory tells is that you can't have good economic times without increasing debt, and that increasing debt always causes a bust. So good times come at a price - you can't have prosperity today without disaster tomorrow.
You have to understand that the problem with debt is cost. There is a benefit from using debt, but there is also a cost. If we increase our use of debt for 75 years, and increase it enough to offset the cost of the debt we're accumulating all the while, at some point the shit is gonna hit the fan.
The shit doesn't have to hit the fan. But you have to understand that it will, unless we do something to prevent it.
It will, unless we do something to prevent it.
We have all sorts of policies that encourage people to use credit, because using credit is good for economic growth. Because of policy, our use of credit is unnaturally high.
We have all sorts of policies that encourage people to use credit. But we have no policy that encourages people to pay down debt.
Because of policy, we borrow money faster than we pay it back. This is how debt got so big. But it doesn't have to be like this.
We could set up policies to encourage people to pay off debt a little faster. We could counterbalance policy-driven borrowing with policy-driven debt repayment.
We could. It would be easy to do. But we will never create these policies until people come to believe they are necessary. And that may never happen, because people like Noah insist that debt might not be a problem.
Toynbee was right. Civilizations die by suicide.