Sustainability: the optimal amount of debt is not zero

Today’s post is about the oft-misunderstood concept of sustainability, and about debt, and the relationship between the two.

We’ll talk about financial, technical, environmental, and motivational (!) sustainability.

Financial sustainability

Finance is the natural place to start because everyone knows what debt means in the financial domain:

1. You borrow money.
2. For each time period you hold the money, you pay a fee called interest.
3. Eventually, you also have to pay back the principal—the actual money you borrowed.

There are a few reasons to borrow money; in this post, we’ll only be interested in debt that you take on in order to invest the money into increasing your future income (e.g. a student loan, a mortgage on a rental property, a company borrowing money from the bank to build a new plant, a government issuing bonds to pay for infrastructure projects).

The cost of debt is the interest you pay; the benefit, then, is the increased future income. As long as the boost to future income is higher than the interest, it makes sense to take on more debt.

Now, financial sustainability, especially in personal and government spending, is often taken to mean keeping your expenses lower than or equal to your income. Living within your means.

But—theoretically—if you have a good plan for investing extra money into boosting your future income, then running your budgets at a perpetual deficit can be completely, indefinitely sustainable, as long as the boost compensates for the cost of interest! And you end up growing faster than if you ran a balanced budget.

You’ll notice that this is what governments and companies do. Governments run deficit budgets every year;¹ companies usually have a substantial amount of debt on their balance sheets.

In fact, as long as you’re always growing, it is sustainable to take on more and more debt. Consider an example:

A government runs a deficit equal to 3 % of the tax revenue. The whole deficit goes to interest payments. There are no new loans, and no principal is being paid off. As years go by and the economy grows, the tax revenue also grows.

But this means the interest payments (which don’t grow) are now less than 3 % of the tax revenue! This is more than sustainable! Too sustainable! The government could in fact sustain the current situation (3 % deficits) indefinitely while borrowing a little more money every year.

As for individuals, we recognize that taking on debt makes sense sometimes: like when taking on a student loan or a mortgage instead of waiting for decades to save up. We wouldn’t call this unsustainable.

But in theory, just like a government, a person could run a deficit budget their whole life, as long as they know how to invest the money effectively and grow their income, and still be operating sustainably.

Technical sustainability

Technical debt works slightly differently than financial debt, but they map very neatly onto each other, including the conclusions of the preceding section.

In software, technical debt occurs when developers code some feature in a way that is faster to finish and ship, but makes the codebase messier, such that future development will be slower.

In effect, you’re borrowing time from the universe: the time you’ll be spending working around the mess every day is the interest, and when you finally put in the time to refactor and clean up that part of the code, you’re in effect paying back the principal.

Just like with financial debt, it is typically not only sustainable, but efficient to run a perpetual “deficit budget”—to keep accruing technical debt, therefore release features faster, therefore increase revenue faster, therefore be able to hire more and more developers, and continue creating new mess even as the old mess gets slowly refactored and “paid off”.

If you kept your code squeaky clean at every moment, you would take years to release your product.

Environmental sustainability

Empty corporate buzzwords aside, what does sustainability mean in the context of the environment and natural resources?

Once again, there is a common conception of sustainability which means living “within our means”; with a “balanced budget”. In mainstream conversation, this primarily means consuming energy in such a way that no non-renewable resource gets spent down.

I’m also thinking of e.g. Daniel Schmachtenberger, who talks about the necessity of closed material loops: for our economy to be sustainable, all the materials we use must be fully recycled; no atoms ending up in landfills, or we’ll eventually run out of atoms.

But as with the previous examples, being able to maintain the current mode of operation in perpetuity doesn’t necessarily mean keeping a balanced energy or materials budget!

There are a lot of energy and materials in the universe. As long as we keep growing and capturing more materials, we can absolutely maintain perpetual sustainability while losing some percentage of our materials to landfills every year. And as long as there always are more non-renewable resources out there that we can get by burning the non-renewable resources we have today, we can keep this up this forever.

(Now of course just like every company runs out of growth potential eventually, in some distant future our civilization will come to a point where we’ve captured all the resources in the reachable universe and we’ll have to slowly transition from a growth economy to a steady-state economy, at least in terms of physical resources.

In that sense, when we say “perpetual” sustainability, it’s “virtually perpetual”, so to speak, not literally perpetual. But this is of no concern today. Trying to run a balanced resource budget before we even leave the solar system would be insane.)

Motivational sustainability

It was actually thinking about this topic that led me to write this post in the first place.

There is a “non-self-coercion” school of thought. It says that you shouldn’t “coerce” yourself to do things you find unpleasant; that is, you shouldn’t do things which raise an internal sense of resistance in your mind. You should do what you want to do (what you’re intrinsically motivated to do), not what you think you should do.

If you coerce yourself, you “have more motivation” to spend in the moment, but at a cost: not just that your experience in the moment is unpleasant, but more importantly, you’re diminishing your self-trust and damaging your relationship with yourself.

If you keep doing this, eventually the self fights back and refuses to work. Your motivation is now worse. Now you need even more self-coercion to do anything—and you’re on an accelerating path to a burn-out.

But let’s consider this scenario:

You are convinced that learning how to write is a good idea, so you start a blog. At first, when you sit down to write a post, you naturally feel internal resistance: you have no idea what you’re doing, your “monkey mind” doesn’t understand what the reward of this exercise could possibly be, and overall it’d just be easier to go back to scrolling Twitter.

Now, the non-self-coercion school would say: just follow your curiosity wherever else it leads you. This is clearly not something that you really want. Maintain your self-trust.

Run a balanced motivational budget.

But what if you “borrow” a bit of motivation against your future self? What if you push through? What if you do something unpleasant for a while?

You publish a few blogposts, being unsatisfied and ashamed of your results, gritting your teeth throughout the process.

But soon, you discover that it gets easier. As your skill improves, so does your enjoyment of the activity (naturally—we enjoy doing things we’re good at). You keep publishing posts and eventually you reach new heights of enjoyment that wouldn’t be accessible if you always gave up at the prospect of self-coercion.

You are very motivated to keep going. You now pay back the motivation principal by doing something that you genuinely enjoy, and by having demonstrated to yourself that the whole venture was a good idea and that you can trust yourself.

And by analogy with previous examples, it’s not just that it makes sense to make a one-time motivation loan. It’s that it is sustainable to perpetually run a deficit motivation budget, and to keep “borrowing” by applying small amounts of self-coercion, as long as you keep using it to grow and improve your life!

Anyway, that’s it. This was the entire point of the article. See you on the next one!