Boettke on debt

At the Coordination Problem blog Peter Boettke writes,

I personally think a lot of deficits and debt talk among economists and the public confuses a variety of things --- trade deficits and budget deficits; private debt and public debt; economic principles and political expediency, etc. Budget deficits matter, trade deficits don't; private debt is fundamentally a different issue than public debt; and economic principles should never yield to political expediency, and our job as economic educators within a democratic polity is to communicate clearly those economic principles so that they form the constraint within which politicians pursue what is expedient.

Much of the problem here is that no matter how hard economists try getting politicians to take notice of economic principles is damn near impossible.

As Boettke points out repudiation of debt is actually a possible solution to the current problems with the levels of debt and its effect on growth. But while this may work for public debt the consequences if private debt was forgiven are nearly all bad. The incentives that such a move would give to both borrowers and lenders would lend to a breakdown in the market for debt. In the extreme borrowers would want to borrow without limit and lenders would not want to lend at all. The market would be destroyed. Hardly a great outcome.