Seth Godin’s post today about the concept of debt is a good one. Citing this book, he points out that debt is, in fact, older than money. This makes a certain sense – it’s easier to make exchanges based on promises.
When I bought a bag of coffee this morning at Dunkin Donuts, the deal at the register was – I promise to give you this green paper if you promise to hand over the coffee. This happens every day without flaw because we live in a stable economy.
But what happens if that promise is broken? How tied are we to it? What if after I handed over my money, the Dunkin Donuts cashier said, “No, we changed our mind. No coffee for you, next customer.”
In this unlikely event, I would have reasonable grounds to say, “Hey, that’s not fair. You are indebted to me. I did my half of the bargain and you are failing on yours. Give me the coffee.” And everyone else in line would see this and say, “Yeah, give him the coffee or we’ll all leave.”
That would be very bad for Dunkin Donuts and it’s part of the reason you hear things like “The customer is king” at so many stores. The entire premise of a business is they uphold their end of deals.
This is understandable when you are dealing with small sums but it gets tricky, as Godin notes, when you start talking big numbers. John Paul Getty said it best, “If I owe you $100, I’ve got a problem. If I owe you $100 million, you’ve got a problem.”
And so it is with Greece and the student loan crisis.
Call me an idealist but I think people are intrinsically good and want to pay off their debts. It is an awful, nagging feeling to be indebted to someone and I loathe it. I cut up all my credit cards years ago.
But if I lend money to someone who I know is spending recklessly, I shouldn’t be surprised if I don’t get my money back. In that situation I am partly to blame for making a dumb loan.