The Committee to Destroy the World

CHAPTER 4 Empty Promises

At the heart of Adam Smith’s admonition that society should strive to be just is the concept of debt not purely in a financial sense but also in a philosophical and moral sense. Every economic transaction involves an exchange of value between two parties. But it also involves an exchange of promises. Two parties undertake obligations to each other. One party offers something to another party, and this gives rise to an obligation by the other party to give something back. Smith was seeking to outline the types of institutional arrangements that would ensure that such exchanges are fair to both parties, or as fair as possible within the exigencies of human society. He was asking the question: What do human beings owe each other? What is a debt? What is an obligation? How do we balance the scales between people as evenly as possible?

Promises Aren’t What They Used to Be

Any discussion of the modern financial system, the disarray into which it was thrown in 2008, and the threats it faces after years of failed post-crisis policies must confront the overwhelming role that debt plays in virtually all financial arrangements. Among the most significant changes in the global economy in the three decades leading up to the financial crisis—particularly in the United States and other Western economies—was the incredible increase in indebtedness at all levels of society. Between 1980 and 2008, the share of household and consumer debt alone increased from 100 percent ...