Bad debt

Amir Sufi talks about consumer debt in this podcast. He makes the point that an economy with a lot of consumer debt is fragile, which is a point I make in my essay on economics after the virus.

He makes interesting points about wealth inequality and consumer debt. He says that when the savings of rich people are channeled into loans for poor people, risk get transferred away from people who can bear it and toward people who are less able to bear it.

Hardly anyone remembers “petrodollar recycling,” which was oil-rich countries lending to underdeveloped countries in the 1970s. The IMF and other “experts” were very keen on it. It worked out poorly. See Latin American debt crisis.

In general, channeling savings from rich to poor in the form of loans is not a good idea.