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Debt-free by design

RecoveringAStudentAug 3, 2019, 4:04:58 AM

    This blog begins the answer to the question, "What does a Debt-Free Society look like?"

    The phrase "debt free" directly implies not having any debt, but a "debt free society" is about more than merely getting people charged up about paying off credit cards. Its also about the matter of making debt-freedom a value within the culture, which drives thoughts about what makes the culture successful, and also drives the people toward making themselves and their larger community "debt free by design."

    A debt-free society, therefore, orients itself to make a "free" state of living a common, normal choice.

Cost of Survival

    The "cost of survival" is not often discussed, but a question going from the individual up to the larger society should include the question of how to make this cost as low as possible, so that the ability to save and become free from debt comes as soon as possible. At an individual level this is a matter of education and thinking about investment - a more modest house or even a tiny house and a productive lifestyle might get the monetary cost of survival close to zero. At a larger level of society, this means legalizing the means of living a low-expense life.

    This might include hot topics like off-grid power and tiny housing, but it also means allowing people to create associations, work contracts, architecture, and non-traditional living arrangements that permit very low cost of living.

    The "cost of survival" also extends to governance. A city "surviving" really just means preventing criminals, outsiders, or a small group with ill intent from destroying the people or their property. As such, whatever arrangement provides this service, be it a government or stateless society, should not concern itself with anything beyond this particular function. All other functions of a society, be it parks or water or anything else, should be handled by the society, not by a government.

    As government adds services, it must necessarily raise taxes to pay for these services, which necessarily raises the "cost of survival." As a monopoly corporation, governments may also outlaw any solutions to problems that prevent them from getting more taxes or "business" for their "services," again raising the cost of survival. This is the dark side of "infrastructure," in that "infrastructure" not only means building something, but it also means adding permanent maintenance costs.

Managing Wealth vs. Maximizing Spending

    The definition of "wealth" is often obscured by status symbols, which are purchased to show one's ability to spend large amounts of money. This not only happens when individuals flash cars and watches, its also something organizations and governments do by flashing a fashionable amenity. However, when cities also engage in "keeping up with the Joneses," they do things like borrow the equivalent of ten whole-house solar systems ($500,000) so they can build a concrete pad with some sprinklers, and then the bond is paid back with taxes equal to twenty whole-house solar systems ($1 million).

    This "borrow and spend" attitude is pernicious in organizations as well as among individuals, and in a debt-free society, we would switch instead to setting up funds for major functions (again, we'll use parks as an example), and paying cash. The added benefit is that invested money grows over time, which means that the $500k splash park above may only cost $300k invested, freeing up a substantial amount of money in the society for people to make more direct investments that lower their cost of survival. Maybe people would plant gardens with money not paid in taxes. There are many possibilities.

    One additional example for the "building wealth" mindset comes from the book The Timeless Way of Building, which looks at traditional architecture. Instead of taking out a big loan to buy a house all at once, perhaps a young couple starts with a tiny house, and per the Timeless Way, adds to it as needed. When a city has a low cost of city survival, trying to keep all housing in a condition that guarantees maximum property tax will not be the priority.

True success

    One more thing to think about a debt-free society is that of measuring whether we are really getting there. The current convention is to use GDP, but GDP is a measure of spending. Someone wasting money as they go into debt will appear more prosperous than someone who is saving and spending wisely by this measure. So, measure of true economic freedom are necessary. A few possibilities include:

    > Debt-to-income or wealth-to-income: A low/zero debt-to-income is the sign that someone is not under the control of debt, and a high wealth-to-income also implies someone's ability to live on their savings, and by extension, the ability to say "no" to a raw deal.

    > Cost of survival: Like we discussed above, the amount of money one needs to survive is a measure of how quickly one will end up in trouble. A community is successful when a low cost of survival means that virtually everyone is not only able to survive, but quickly thrive.

    > Layers of protection: This one is not as easy to measure, but ideally, in a debt-free society one has many layers of protection from a crisis. One's own savings are the first layer. Social safety nets are a single layer, but if this is alone, and it fails, it is a crisis. Multiple layers, like family, church, private clubs, and the like are a measure of protection should a city, state, or national government fail.

    When we look at these measures, it becomes clear that the "social safety net" programs are in fact quite deficient. They raise the cost of survival, and may become a single point of failure in a community. Imagine a city going bankrupt and being unable to pay for food stamps.

Building the Debt-Free Society

    Now that we have some idea of principles and success in a debt-free society, I will follow up in future essays with specific examples of things we can do to bring the debt-free society about. We will be looking at both individual actions, as well as what people can do together.

In the mean time, please check out the Debt-Free Society group, and we can continue the discussion there.