I've seen cases where it allows those with money to extract money from those with a lot of money too.
Take this situation:
Business A and business B are both doing well and competing with each other in a duopoly.
a) No credit: Each business needs to be in the black, and competition is sustainable.
b) Credit: Whichever business borrows more money to spend on buying customers is more competitive in the short term (which can lead to monopoly long-term). Both businesses run in the red are and brittle. In any downturn, tightening of credit, etc. both are liable to go under.
This competition to raise increasing amount of money to be competitive (to increasing devaluation and/or debt makes for a pretty broken economy), and makes traditional businesses (which invest in R&D from profits) increasingly unsustainable.
This even goes to government level. Historically, if e.g. two European powers were in a war, whomever could borrow more to buy weapons / hire mercenaries would have an advantage. Access to credit made for more costly, more deadly wars, and broken national economies. If neither side had access to credit, both sides would be strictly better off.
There are parts of the US where home ownership is bottlenecked by land prices, where this is absolutely the case.
And there are parts where it's bottlenecked by construction costs, where this is not the case.
"Are a bad thing" is also complex. I would agree they WERE a bad thing when introduced.
Today, there is a complex problem of how you unwind this phenomenon. If you invested your life savings plus $800k of debt into a $1M home, and it's worth $500k, you have a serious problem. Simply eliminating access to debt would cause all sorts of economic disruption for consumers, almost certainly outweighing the benefits in lower housing costs.
And the other piece of the puzzle are zoning and codes. 100 years ago, if you had a plot of land, you could cut the wood and build a log cabin. Today, construction is $$$$$$$ because of inspections, licenses, insurance, and a crew of bonded / licensed workers. A log cabin would be illegal and result in fines.
However, it’s become more and more clear that not all credit is created equal and what you spend the resulting capital on matters a lot. If one buys a house to live in or equipment to make money with - that’s generally good use of credit, assuming costs do not outweigh the benefits. I can’t think of a situation where buying lunch that one has to finance is a good thing (as different from credit card points harvesting/optimization). The implications of anything similar to payday loans going mainstream feels like a large societal risk.
Key differences:
- Houses are gaining value over time while consumer goods such as food, phones, TV, cars are loosing value over time.
- A loan for a house can be paid back very slowly so that you effectively only pay your initial share of the price (and share the profits with the loan giver via interest). A loan for consumer goods must usually be paid back almost immediately.
A car loan can be a great investment if it gets you to a job you otherwise wouldn't have, even if it is going down in value.
Debt for an expensive degree that gets you a good job is the same, and entirely devoid of resale value. Debt for an expensive degree with no job prospects, not so.
Housing bubbles obviously come to mind, where there is obvious income and utility potential. Bubbles are about the balance of these return factors with pricing, not a result of their entire absence.
Either way, there is a fundamental question about whose moral authority it is too allow or not allow certain behaviors of others, and what that threshold is.
If I want to buy a smart TV, flashy car, or a case of beer on credit because I value pleasure today over cost tomorrow, who are you to tell me it is illegal?
But an even better outcome is for the whole damn edifice to cease to be.