Counting the Cost of Good and Bad Debt

by Jim Wallis 03-26-2009

While watching President Obama’s press conference Tuesday evening, I was struck by a few things that are often forgotten in the criticism of his proposed budget.

Count the Cost

It is commonly accepted by biblical scholars that upon being warned about a plot by Herod Antipas to kill him, Jesus called Herod “that fox” (Luke 13:32). Biblical scholars such as John Ortberg also believe that Jesus was referring to Herod in chapter 14:28-32, with references to an embarrassing military overreach in which Herod failed to count the cost before going to war.

Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it? For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him,saying, “This fellow began to build and was not able to finish.” Or what king, going out to wage war against another king, will not sit down first and consider whether he is able with ten thousand to oppose the one who comes against him with twenty thousand? If he cannot, then, while the other is still far away, he sends a delegation and asks for the terms of peace.

Jesus didn’t hesitate to publicly call out a king who failed to count the cost of a war, even when that king was out to kill him. Throughout the Bush presidency, we saw exactly this failure to count the cost of war. When President Clinton left office, our nation was benefiting from a $127 billion budget surplus. With the books now closed on the Bush years, the Obama administration has inherited a $1.3 trillion deficit. This deficit was accrued by a reckless pursuit of conservative ideology with tax cuts for the rich, while hiding the true cost of a war by deliberately leaving war spending out of the budget, and financing the venture through emergency supplemental bills. Government spending skyrocketed, while responsibility for paying off the debt passed on to our children.

And paying for war does not end when the conflict is over. Whether or not we agreed with the war doesn’t relieve us of our moral obligation to take care of those who fought it. Service providers have been reporting a new generation of homeless veterans living on our streets for several years now, and their physical and mental injuries will leave some vets unable to assume full employment for the rest of their lives.

Good Debt and Bad Debt

This is a difference that we all have had to work through. It is the difference between going into debt for something that will bear greater returns in the long run, or going into debt for things that will only depreciate in value. Another way of saying it is knowing the difference between wants and needs. We encourage our children to go to college even though they will have to take on some debt to do so, because the benefits of a college education far outweigh the amount of debt accrued. (Although college costs have now increased so significantly that some students are now finding out that even college debt can be bad debt.) We don’t encourage our children to put $1,000 on a credit card, with an interest rate of 30%, to buy an entertainment system they don’t need. Why? Because the entertainment system brings a moment of pleasure but does not add any long-term value to the child’s life.

When we look at the president’s budget, we have to ask ourselves whether the deficits it will incur are good debt, or bad debt. Are the things being paid for a want or a need? While Bobby Jindal publicly mocked spending on volcano monitoring, this week’s eruption in Alaska and past eruptions like Mount St. Helens have shown that a small investment now can save far greater sums of money in the long run — and even save lives.

The president has outlined three areas of spending in his new budget that will help by immediately stimulating demand within our economy and by adding long-term value to the country. The first is education, with the president deciding that it is worth going into debt to increase the quality of and opportunities for education in our country. The second, spending on health care, also adds long-term value to our society. Every year billions of dollars are spent unnecessarily when people put off treatment because they are worried they can’t afford it. Third, there are long-term benefits from spending on the environment and infrastructure. Spending on environmental improvements creates jobs that cannot be sent overseas, and will also reduce the high health-care costs associated with various environmental maladies. Debt, of course, must come back down to a sustainable level, but the way to get it there is by investing now in areas that will pay off in the next few years and for generations to come.

So yes, a lot of us are experiencing sticker shock with the new Obama budget. But this sticker shock is like the one of a student looking at their loans — not a credit card bill racked up at Banana Republic. It is debt that requires discipline, hard work, and focus. But it is the good kind of debt, the kind of debt that can and will produce surpluses in the long run.

Categories: Economics

DITE

"We do want our debts to remain a small percentage of GDP - but since GDP grows, it's not wrong if our debt grows at the same rate as GDP in the long term."

Our economy will growth. Our tax revenues will increase. But so does government spending.

letjusticerolldown

In general, I think Mr Wallis wants Obama to administer the government. It is good and well for citizens who are leaders in their Christian congregations to advocate for this. I do not agree with Mr Wallis on everything but I do not think it accurate to assert that by advocating for good government, one has relegated the church to nothing.

Bruce48

The Year of Jubillee passage in Leviticus deals with the issue of debt. The central concern in the passage has to do with families losing access to agricultural land which resulted in the family not being able to support themselves. Families losing access to the means of providing for themselves was seen as such an evil occurance, that the biblical answer was to periodically redistribute that land back to the original family that owned it.
I understand the concern with the vast amount of debt we are facing, but the biblical commentary on debt centers more on the issue of its effect on the family, which is seen as the basic, personal economic unit. Today, we live in an information based economy, rather than an agricultural economy. Creating information based employment, ie through education, healthcare and "smart grid" power sources seems consistent with this passage's, biblical truth.
As for all the new government debt that Obama's proposing, I resent that he's trying to have the public take on the responsibility for massive amounts of private debt that was created mostly on Wall Street. Kevin Phillips book, BAD MONEY list the level of debt being carried by different parts of the economy, back in 2002.

Federal goverment debt $ 5 Trillion
Household debt (mostly home mortgage and credit cards) $11 Trillion
Corporate debt, excluding the Financial sector $ 9 Trillion
Financial sector debt $ 14 Trillion

Financial sector debt in 1980 was "only" $300 billion. 98% of this financial sector debt was generated during the 80's and 90's. Much of the corporate debt and household debt was also aided and encouraged by Wall Street, with the "leveraged buyout craze" over the last 20 years and housing bubble that everyone is talking about. Now Obama would have us convert that debt from private Wall Street debt into public debt. The Wall Street debt was used to feed evil, unfettered greed. Jesus threw the moneychangers out of the temple. It's time we did the same thing on Wall Street, not bail them out. Fire the senior management and reorganize the Wall Street banks and financial institutions.
Jim Wallis uses an analogy of good and bad debt, comparing credit card debt consumption with education debt. My definition of good and bad debt is this. Debt generated by all consuming greed is BAD debt. Debt that can restore families to being able to support themselves is GOOD debt.

benadam

Let me ask this question: isn't this blog supposed to be G_d's Politics? If so, it is odd to me that Jesus was quoted only to support the government at hand, ridicule a government--which in party might be different than the current government but in system it is identical--posthumously, and quote one passage in order to define an entire economic maneuver. Why, pray tell, are we speaking of G_d's Politics without including G_d's people, for it must be remembered well that the U.S. is not G_d's chosen nation. Rather, those who do the will of G_d are the children under G_d's political domain, G_d's basilea/Kingdom/rule. Why do we omit the Church from this discussion?

It seems quite clear that in order to include the Church in this discussion, the notion of economic crisis, we would be discussing a place of Jubilee. That is to say, we would be discussing a group of people that give money to the poor not the banks. Furthermore, we would be discussing a society in which no one has need. Nonetheless, to our own embarrassment, we live nothing like this. Instead, we demand healthcare for free, unwilling to provide it ourselves. We demand good education, unwilling to teach it ourselves. Oh, what foolish Protestants we are! If we knew anything about our Catholic brothers we would know the finest schools, the greatest hospitals in which no one had to pay to be healed were run by Christians not the government. It has only been with the rise of the individual, the post-enlightened, dualistic soteriology in which salvation exists in a soulish vacuum that the Christians have turned not to the community but the federal government to take care of the poor and needy.

Mr. Wallis, if you want to seek G_d's Politics, you ought to know that Jesus' Kingdom is not of this world. We live radically different lives. We do not need the bureaucracies of this world to look after the poor and needy. We need the Holy Spirit, the Church, and the self-sacrifice of a people set apart. Instead, you would have us become a people of this world, who, instead of promoting an alternative to the capitalistic, centrally-powered empire, propagate what appears to be "good" business practice. Where does the Church fit into Barack Obama's plan Mr. Wallis? What happens when the leaders of the Church begin to ask the government to lead the movements they should be leading?

Read this for more:
http://threetorchestogether.wordpress.com/

-ben adam

benadam

Has Obama ever said how he plans to help implement and accomplish such goals, or are these strictly that, goals? It would seem to me that instead of reading op-ed pieces by the President of the U.S., you should spend some time looking at what he is doing. He has made the extent of the Iraq War indefinite, he has spent/will spend well beyond the U.S.'s means (where is he going to get all that money?), and he has done nothing in the way of instituting a sustainable economy based not on money spent to create the bubbles he warns of but money represented by actual tangible goods. Instead, he pushes the world closer to globalization

"We have learned that the success of the American economy is inextricably linked to the global economy."

and reignited the fuse on a system that blew up once. What do we expect to happen? Will the banks be naughty or nice? Do we really need to ask that question? I is the change we believe in Obama and not Jesus? Obama thus far has only managed to let us down because his way is one of taking power over rather than suffering on a cross.

-ben adam

DITE

"What is the point of this comment? That "we want people to live long healthy lives" but only if it doesn't cost more money? Is money the only value here?"

The point is that Wallis made the inaccurate claim that we can go into debt to spend money on health care because we will have surpluses in the future. I'm pointing out why this claim is wrong. I wanted to keep the conversation on the budget and not start a private versus public health care debate, but, for the record, I would support the government spending more money on health care if I thought it would actually improve our health care.

I'm not surprised that a private charity was able to improve academic achievement in one school in Texas. The federal government, however, is a much different animal and has not had the same success.

I want to help people too. I just don't think more government spending is always the answer. There are economic consequences when we print money and go into debt.

xfree9

"so therefore we shouldn't increase spending on education? "

DITE never said we shouldn't fund things or not increase spending. But there is a profound difference between spending money on education and improving education. Many schools are doing better jobs for less money. Some need more than others, no doubt.

Your example of "unlimited funding" perhaps goes to show not that funding is the solution, but that decisions made on a local level are more effective. Bush's federal initiative didn't improve things, as federal things rarely do in the ways they intend (think war on poverty, war on drugs, war on terrorism). Local efforts to abolish poverty, drugs, violence, etc. tend to be more effective. Not that there's not a place for federal support, but...

jeffp

"Not counting the cost" like when Obama ask for more power to regulate banks but doesn't offer a plan, or when he asks for more power to take over other businesses also with out a plan.

The greatest cost of the Obama stimuli and budgets is FREEDOM. You can not do what he wants to do without taking away peoples freedom. So the fear machine is cranked up and we trade in our freedom for the promise of financial security. In the end old Ben Franklin will be proven right: if we trade freedom for security we will lose both.

smfergus

Think about this:

"We want people to live long healthy lives. But it's just not true that if people are healthier and get more check ups, we'll save more money in the long run. The opposite is true."

What is the point of this comment? That "we want people to live long healthy lives" but only if it doesn't cost more money? Is money the only value here?

"increasing in spending on education isn't the same thing as improving education" - so therefore we shouldn't increase spending on education? A politically conservative service organization in Texas decided to test the argument that it wasn't necessary to "throw more money" at an education system in order to improve it. For one year, they allowed (virtually) an unlimited budget to a local school in a disadvantaged area to purchase books and equipment. Guess what - success rates improved dramatically.

There is no way to have an adequate education or health care system without spending adequate amounts of money. I'm not talking about unlimited and unaccountable spending, so please don't set up that straw man. If there is an inequality of resources in an educational system that we say we want to be an equal benefit for all children, I don't see how the resources can be made available without spending money.

"We want people to live long healthy lives. But it's just not true that if people are healthier and get more check ups, we'll save more money in the long run. The opposite is true."

?????! Healthy old age is less costly than sickness and disease at any age, and there's a greater likelihood of a healthy old age with adequately funded and available health care. If adequate basic health care is not available to everyone, and it takes increased funding to make it so, how can a follower of Christ maintain that funding should be decreased, when money is available in other, less critical areas of spending? That is like a parent saying they can't afford to buy essential medicine for their children because they have spent too much with their credit card last year and they want to pay down the credit card debt this month - it's not great to have to make that choice, but which parent would choose the credit card?

It's trite to say that you can't fix problems by throwing money at them - but there are other things to do with money besides throw it.

weiwentg

I think that some folks don't fully understand government budgeting.

Governments presumably exist forever, and can count on an infinite earning stream through taxes. Furthermore, assuming the economy is managed well, it will grow steadily. From that perspective, it's not wrong to borrow money to enact a short term stimulus. We do want our debts to remain a small percentage of GDP - but since GDP grows, it's not wrong if our debt grows at the same rate as GDP in the long term.

The last time someone tried to balance the federal budget in a recession/depression was during the first few years of the Great Depression. It didn't work. The stimulus bill was generally targeted to put money in the hands of the newly-unemployed, the low-income, Medicaid recipients - those who were most likely to spend it fast and put it back into the economy.

Additionally, the main reasons Obama's projected deficit are looking worse is solely due to the economy. CBO and OMB project tax revenue against expected outlays. The economic picture is now known to be bleaker, so projected revenues go down. That has nothing to do with projected spending, which is large but manageable.

Those who say now isn't the time to do health reform and climate change are wrong, because we did nothing when times were good. It can be done now and God willing, it will be.

The climate change part is essentially neutral to a lot of folks, because the President proposed to rebate the revenues from carbon permit auctions to consumers. You get a broad based tax increase with a broad based tax cut. Additionally, people now have an economic incentive to reduce their own emissions.

If we don't do healthcare reform, we go broke. The people who say there's enough money in the system to pay for reform, and that we don't have to spend any more money to get reform, don't really know how the system operates. I wish they were right, but the Feds will need to put money in upfront to get everyone covered and to lay the infrastructure for future cost containment, like health IT and comparative effectiveness research. We could simply cut provider payments, but that leaves a lot of them unable to adapt. The savings come in down the road.

misslinda2000

Did you not even read what Jim Wallis said? Green J-O-B-S that cannot be sent overseas (does anybody hear tax revenue in that sentence?) Healthcare reforms that will SAVE money now and in the future. Should I have to die of cancer because I cannot afford early detection? I thought this was the greatest nation on earth, but I cannot go to the doctor and I cannot go back and finish my college degree unless I am wealthy.

I am scared of a future without this budget. I am afraid of what my grandchildren will think when they are left with a devastated planet, living like the extremely poor live now in Africa. No water, no air conditioning, no food, no fresh air. All because we were too selfish to do the right thing now, before it's too late. Obama is right, and so is Jim Wallis. God help us if we don't change our ways. Even if Obama is not perfect, he's the best president in my lifetime. We voted for change. That's what we want.

xfree9

I'm curious why you have no problem with the "stimulus" plan. You have no problems? Or you have few problems? Or you think overall it's good but not perfect?

I'm genuinely interested.

judithod

Agree, xfree. Obama freely and disingenuously uses "investing" as a synonym for "spending."

jonabark

I have no problem with the stimulus plan. What is dead wrong is the war plans, military spending, and the bailout monies going to prop up the megabank gamblers at the expense of taxpayers and good honest banks that have now to compete with banks that swindle and charge taxpayers for the losses.

Obama should fire Geithner. He cheated on his taxes, approved the bonuses for AIG and protected Goldman Sachs by routing money their way. This is clear conflict of interest as an ex Goldman employee.

The problem with Obama is a failure to read the gravity and potential for change of the moment. The people are ready to support bold reforms but Obama is continuing the Dem tradition of doing good in token amounts and serving the the big powers in the trillions. It makes it look like the voice of the people is irrelevant in this so called democracy, that Democrats and Republicans care only about campaign money, big powers and getting reelected. I am deeply disappointed.

I encourage Jim to take a hard look , and speak truth to power.

.

xfree9

Funny you mentioned Bush, cuz I thought Obama would be different. All I see is more of the same, just different priorities now that the other side is in power.

xfree9

Wallis isn't interested in such reasonableness. He is interested in getting others on board with Obama's deficit budgets, claiming their worth by equivocating on what "return on investment" means.

BillSamuel

It is strange given Wallis' Biblical lead-in which speaks about military spending that Wallis fails to mention that Obama's proposed budget includes 52% of all discretionary spending on the military. This is "bad debt." Why did Wallis ignore that? Rep. Barney Frank has proposed cutting that 25%. One would think, given the Biblical lead-in, that Wallis would have suggested support for Frank's proposal, but he doesn't mention it.

judithod

Please quit pointing to "Bush's deficit" in an effort to mount a defense of Obama's spending that will soar the national debt to $14 trillion by next year and to $17.1 trillion by 2013. The title of "biggest spender" in the history of our nation will be assumed by Obama, and the money he wants to spend is borrowed! This is judicious? This is "change we can believe in"? No, we're spinning rapidly into economic serfdom, and those who have never run as much as a hot-dog stand--including Obama, Reid, and Pelosi--will be the masters of unprecedented deficits and, in all likelihood, unprecedented wasteful spending. Apparently, Mr. Wallis, you've bought into Obama's favorite euphemism for spending wildly and profanely--"investing." You and others are being sold a bill of goods by a baritone wordsmith.

DITE

So it's "President Clinton," "President Obama," and just "Bobby Jindal"? I know he's a Republican, but it wouldn't hurt to call him Governor Jindal. And Jindal is still right. We have been very successful at monitoring volcanos at the current level of spending.

"The first is education, with the president deciding that it is worth going into debt to increase the quality of and opportunities for education in our country."

increasing in spending on education isn't the same thing as improving education.

"Every year billions of dollars are spent unnecessarily when people put off treatment because they are worried they can’t afford it."

We want people to live long healthy lives. But it's just not true that if people are healthier and get more check ups, we'll save more money in the long run. The opposite is true. If people are healthy they will live longer. But no matter how healthy you are, health care is very expensive in old age.

"But it is the good kind of debt, the kind of debt that can and will produce surpluses in the long run."

And by "surpluses," you meant "inflation."

xfree9

Funny thing you mentioned Banana Republic... maybe your prophetic voice is back again.

I'm baffled by the blatent disregard for human beings in Wallis' approach to budgets and deficits. Running deficits on borrowed money that we cannot pay back, or where we print the money to fund things, is detrimental not only to society as a whole, but to those who are least able to afford things basic to life already. Those who are wealthy can afford a little inflation.

Mr. Wallis, I'm not an economist, but I am a thinker, and I believe you are, too. Think, sir, and research, before you go off spouting ludicrous praises of an immoral budget that doubles the national debt in one term of office than all the presidents from George Washington to George Bush. Do you not find this the least bit troubling?

This budget is an absolute disgrace, just like the budget(s) of the last administration, and the previous one (though Clinton did a better job, however horrible it was). "Good debt" can easily be defined by how much return on investment we will reap, but you are equivocating on those terms. Funding health care through debt and deficits, taking jobs and resources from the private sector for your "public works projects" is unproductive for an economy. Funding (college) education drives the costs of education upward because where there is more supply of easy credit and money, there are higher rates to attend those schools. Cause and effect. The monetary costs of this deficit budget cannot be repaid by providing "free" health care or "free services" otherwise. You may presume to have good causes for those goods and services, and you may be right that we as a society should fund them. But do you promote people to put thousands of dollars on their credit cards to pay charities to be compassionate?

Mr. Wallis, you do not think of cause and effect. You do not think of the ripple effects of such a budget. You do not understand one inkling how economics works.

As with the previous comment, I too hope President Obama will own up to the situation, and work to prevent a collapse of our economy. But we are out of money, and we are soon running out of borrowers. The government can then only resort to printing money.