Moral Bankrupcty

Megan McArdle, over at The Atlantic, makes a very key point:


Undoubtedly many of my readers think that that sort of thing is different because we don't have a moral obligation to repay our debts to corporations the way we do to people. This strikes me as fundamentally wrongheaded in two ways. First, the bourgeois belief that an honorable man repays his debts if he is able is one of the unnoticed underpinnings of a stable, prosperous democracy. Countries that believe that one can pick and choose whom one is obligated to repay on the basis of how good a person the lender is, how tight their relation to you, or whatever, are low-trust societies with extremely high transaction costs and underdeveloped markets. If you think you're only obligated to repay regular folks like yourself, then no one but your close friends and family will lend you money. This makes capital formation tricky.