Released November 5, 2009

RALEIGH, N.C. -- Borrowing seems to be out now. Consumers are trying to pay down on debts, and the government is receiving a lot of criticism about all the borrowing it has done to fight the recession. But have we moved too far the other way? Aren't there some good times to and good purposes for borrowing?

Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Absolutely, and let me give you three examples.

Let's say a business borrows money today to build a new factory from which they will earn profits and easily pay off that loan over time. That borrowing, therefore, was very good for the business.

Or let's say a household - a young household with children; and they need a house to raise those children; that's going to be a better environment for them, more control over their space - they borrow money to buy a house. They're happy in the house. They pay off that loan easily over time. Obviously, they've benefited.

Or finally, government; let's say government borrows money to build a road. That road is going to last decades. That road is going to get people from point A to point B much more efficiently. The government is going to pay that off over time. People who use the road will finance it. So again, that was a good purpose for borrowing.

You have to look at both the cost of borrowing - which, of course, I think we're very hypersensitive to right now, rightfully so - but you also have to compare that to the gains from borrowing, and make a decision, are those gains greater than the cost? If so, then actually borrowing in that case is very good."

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http://www.ncsu.edu/project/calscommblogs/news/archives/2009/11/economic_perspe_484.html