Debt in Just Societies

Abstract

A post-Great Recession consensus has emerged that persons, firms, banks, and governments should deleverage and that access to credit should be restricted. The article deals with legal and policy solutions to the dilemma that debt presents to societies: successful societies benefit from a substantial infrastructure of consumer, commercial, corporate, and sovereign debt but debt can cause substantial private and social harm. Pre- and post-crisis solutions have seesawed between subsidising and restricting debt, between leveraging and deleveraging. Unsophisticated solutions restrict debt without accounting for the risk of harm to persons least able to bear the risk, worsen pre-existing inequalities, destroy or impair the net worth of households, and impose unfavourable distributive consequences. This article offers normative tools to assist policymakers in developing institutions to take criteria other than economic stability into account, but which do not undermine the aim of economic stability. I argue for access to credit architecture that is responsive to equality concerns. I advocate a luck egalitarian approach, a responsibility-catering form of egalitarianism offering policymakers options to take the debtor’s choice and desert into account while still accounting for cognitive mistakes people often make in debt decision making. More sensitivity to equality concerns in law and policy should lead to developing incentives to promote hybrid instruments to relax the rigidity of debt. It should also lead to discouraging, on moral grounds, law and policy relying primarily on private debt to finance the public goods features of mixed public-private goods.