It's no utopia, but it works well enough.
Taking on debt to pay your daily living expenses is a recipe for disaster - and that is what the US govt. has been doing (and many individuals as well)
Even that isn't necessarily true - if one is broke but one needs a car for a better job they need to take on debt for the car. The debt definitely isn't an appreciating or incoming earning asset, but it is a good choice.
Unpopular opinion, and maybe I'm wrong here and I've just been lucky, but I've stopped seeing debt as a bad thing. You have to use it smartly of course, but I don't think there's a one-size-fits-all answer for what that means. Use it for daily living expenses? Sure, as long as you can pay it off every month. Never take out a loan and spend years saving for a car? Nah, or at least not when that interest rate was 2-3%. And I suppose that's where increasing interest rates come in: Get the 99% to stop buying.
Now with immediate injection of cash, assets are at prices which require money that an ordinary person will never have. They have to jump on the debt treadmill to acquire necessities.
Taking on unsecured debt is a bad idea. But if you are going to spend $100,000 on living this year and have $100,000 in the bank, you have two choices. Spend the $100,000 and have nothing. Or use the $100,000 to buy bonds or another income producing asset, then take a loan using that as collateral. As long as the interest you earn from your collateral is more than the rate you pay, you come out ahead.
Instead of having a bank account with $0, you have an investment account with $100,000, debt of $100,000, and you're earning interest on the investment account each month that hopefully covers the interest on the debt plus provides some extra income.
The 'asset' that the government is taking dept on to pay for its living expense is YOU. On the averaged timeline YOU are an income earning asset. The government takes some expenses (roads, education, water, safety) and out comes a taxpayer that has an average income earning lifespan.
You as an individual don't get to play the averages game quite as well. If you are borrowing money today to pay for your daily expenses it is highly likely that will be true tomorrow. You as an individual have risks like getting fired and not getting a new job, or getting smooshed in a car accident. These are risks your lenders take on when figuring out the rate your loans will have, if you even get a loan at all.
this is a good rule of thumb, but there are exceptions. say I want to buy something that costs much less than my net worth, but more than I typically keep in my checking account. I have the choice between a) selling investments, b) taking out a loan, or c) deferring new investments until I've accumulated enough cash.
there are pros and cons to each. with a), I'm paying capital gains tax that I could otherwise defer. with b), I'm taking the risk that my cash flow dries up and I need to sell assets anyway on top of paying interest. and with c), I'm taking the risk that my cash inflates away while I'm saving up.
you can't know with certainty which is best, but b) is usually optimal with a sufficiently low rate.