We’re More in Debt than Ever. What Now?

One paradoxical solution to the affordability crisis: let individuals take on even more debt

A curly-haired woman wearing glasses stares at a sheet of paper worriedly while working on a laptop at her kitchen table

When I was nineteen, after being told that I was unemployable for every dishwashing, barbacking, and retail position that I applied for, I found myself working as a debt collector at a third-party collection agency. It was my job to motivate people to clear out their debts in the face of mounting interest or tarnished credit scores, and I was incentivized to do so by the opportunity to earn a commission percentage on each repayment I successfully negotiated.

One of the most insidious things that I remember occurring in this industry was how we offered to close accounts if debtors agreed to pay portions of their balances, usually in the neighbourhood of 50–75 percent of the outstanding amount. We were urged to phrase this offer with a degree of finality: the debtor would think they no longer owed any money, but in reality, there was nothing preventing creditors from rebundling the remainder of the debt with other agencies, all while the meter of interest ticked on. Debts like these seemingly ensured that people would never escape the thumb of usurious creditors, and debt collection, I realized, was but one cog in the silent, efficient machinery of the credit system assailing us.

Years later, I encountered American anthropologist David Graeber’s writings on debt, in which he described the veiled purposes of economic dependence, financial instruments, and debt underwriting in detail. Graeber, an anarchist and leading activist in the Occupy movement, called consumer debt the “lifeblood of our economy.” Speaking more broadly in Debt: The First 5,000 Years—perhaps the most well-known study on the subject to emerge in recent memory—he wrote that the “very fact that we don’t know what debt is, the very flexibility of the concept, is the basis of its power. If history shows anything, it is that there’s no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt.” He believed that debt was an imposition that those in power placed on their “victims,” whether it involved banks, nation states, or even members of organized crime syndicates.

With consumer debt in Canada having reached $2.45 trillion by the end of 2023, increasing by 3.2 percent from the previous year, it’s clear that the debt crisis will continue to define Canadians’ social mobility. In response to staggering rates of inflation, the Bank of Canada has raised interest rates several times since 2022. The decision influences the amount Canadians will have to pay back on variable-rate mortgages and loans. Bay Street analysts expect that the bank will start cutting rates only in the first half of 2024, but it will take consumers years to recover from high interest rates.

The role that governments should play in managing these borrowing and lending relationships—not to mention the economy more broadly—has long been debated. Proponents of laissez-faire-style trickle-down economics tend to believe that deregulation will solve all market inefficiencies. When countries come close to the brink of economic turmoil, on the other hand, state regulation in the form of bailouts, tax cuts, and other economic adjustments can be used to correct market failures. Others, like Graeber, argue for interventions that are more radical in nature.

It is far easier for governments to modify or tinker with existing economic arrangements than it is to enact overhauls that could have wide-ranging effects—not all net positive—on debt-saddled Canadians.

In 2023, the federal government eliminated interest on federal student loans. An interest freeze on student loans is an encouraging development. Access to education and housing are sometimes considered integral components of the welfare state, along with universal health care and a social insurance benefit program for pensioners. But the freeze begs the question of whether it is possible for governments to make more substantive waves when it comes to modernizing the system of debt accrual currently in place.

A debt jubilee, which Graeber strongly advocated for, could have been an unprecedented program of debt forgiveness across the private and public sectors—a slate cleaning of debt obligations. The odds are highly unlikely, though—such a move would have destabilized the multi-billion-dollar Canadian debt securitization market.

Debt securitization is when banks and other financial institutions pool existing loans together (mortgages, personal loans, credit card debts) and sell them to third-party corporations, which then convert the debts into assets that can be bought and traded by investors. The sale of these bundles provides a cash injection to banks and renews their ability to give out new loans to credit-starved borrowers. This convoluted process has become so entrenched that altering it would unsettle the entire banking industry.

The federal government’s temporary ban on home purchases by non-Canadians is another instance of this economic experimentation. The act effectively prevents foreign commercial entities and individuals from buying residential properties until 2027—the hope being that this adjustment will cool the overheating Canadian real estate market.

But in March 2023, the federal government backpedalled by reclassifying corporate foreign-control thresholds so that fewer companies would identify as foreign owned, thereby allowing more investment capital from abroad to make residential and mixed-use vacant land acquisitions during the housing ban.

If the political will to help Canadians who aren’t born into money own homes, cars, appliances, and other essentials is lacking, then perhaps the only solution to the affordability crisis—paradoxically—is for individuals to take on even more debt. In fact, Joseph Heath, a public intellectual and philosophy professor at the University of Toronto, argues that the real problem in the economy isn’t that people have too much debt—but rather that they don’t have enough. He believes banks have been too conservative with credit for borrowers.

This is not to suggest that the current economic conditions are the most efficient way of organizing a society—fighting debt with more debt seems something of a self-annihilatory approach to budgetary discipline—but Heath believes that there exists a serious misallocation of income over people’s lifetimes.

Heath disagrees with Graeber’s assessment of our current debt system as one that threatens to “wipe out humanity every generation or so.” In our conversation about the fiscal state of the country, he argued that debt processes are not inherently skewed to harm the borrower. In fact, he says, “over the course of the twentieth century, the conditions of debt shifted to favour the borrower.”

“The chances of creditors getting repaid decline the more laws favour the debtor,” Heath argues, “with the result being that interest rates go up. The complement of these debtor-friendly programs is always going to be higher interest rates, which is essentially a way of collectively indemnifying individuals who default.”

“People who have a simple understanding of distributive justice see it as a sort of contest between the rich and poor,” Heath says. “They think that their sympathy should lie with the poor whenever you consider debt, because by definition, the creditor is richer than the debtor. There’s a standard left-wing view that always regards the debtor as the oppressed person of that relationship.”

“Young people should have access to more credit than they currently have,” he says. Young people typically have lots of earning potential but low financial capital, while people in their fifties typically have a significantly larger financial capital (though even this is becoming less true as a new generation of workers struggles to afford retirement). “What you ideally want to do,” Heath says, “is equalize financial capital over people’s lifetimes.”

Heath believes that the role of good public policy is to achieve this equalization; given that young, unpropertied people cannot get the kinds of loans they require to enter the housing market, the credit system appears to be underserving a large proportion of its consumer base.

With millions of Canadians struggling with housing and other skyrocketing costs of living—mortgage brokers expect borrowers to pay 20–40 percent more in interest when they renew in 2025, and Canadians staying in large metropolitan city centres are expected to be already paying more than the recommended 30 percent in take-home pay on rent—they will need to get creative about ensuring their fundamental human needs are met, even more so if the current conception of the welfare state no longer includes housing affordability or relevant housing provision.

Consumers from all walks of life investing in the debt securitization market might be one currently viable option of generating sorely needed revenue, Heath suggests.

“The ideal arrangement in our society is that younger people should actually have a lot more debt than they currently have. There will always be a lot of conflicting objectives at play, but policy tries to square the circle.”

Jean Marc Ah-Sen
Jean Marc Ah-Sen is the author of Grand Menteur, In the Beggarly Style of Imitation, and Kilworthy Tanner. He lives in Toronto.