Is All Debt Unsustainable?

BY Paul Solman  August 31, 2010 at 4:36 PM EDT

Question: Economists seem to agree that the debt cannot be sustained. I’m skeptical of this generality — that is, not all debt is the same. Isn’t it important to distinguish between the debt incurred to improve production and research, versus debt incurred for pure consumption?

Paul Solman: Absolutely. The first rule of debt: It’s not how much you borrow; it’s what you do with the money. What economists agree on is that UNPRODUCTIVE debt cannot be sustained. If you borrow money and use 100 percent of it to buy goods from China and oil from the Middle East for Sunday drives, you’re unlikely to be rich enough, in the future, to pay back the interest and principal.