The Debtor's Revolt

I think one of the important dynamics with debt is that it makes the race to the bottom worse because it lets people come up with clever ways of digging the bottom deeper. If there's some well calibrated amount of debt to take on some people will, by virtue of miscalibration, take on more than that, and others in a position to profit from that will have an incentive to create distortions to make such miscalibration more likely. Even worse than with individuals, this happens at the level of organizations including governments, whom many rely on as monopoly providers of many important goods.

Consider my friend with the business plan to buy up laundromats. Let's say an illiquid, privately held laundromat makes a 25% return on invested capital. Suppose the stock market demands a 10% return for a small-cap company. So $100 million of privately held laundromats would generate $25 million in annual income, worth $250 million on the stock market, 2.5 times the initial investment. But if the laundromat company can finance 75% of the deal at 10% interest, then the cash cost of acquisition is $25 million. The cash flow profits of $25 million are reduced by $7.5 million in interest payments, for a net annual profit of $17.5 million. This company could sell for $175 million on the stock market, seven times the initial cash outlay. For this reason, orthodox financial theory recommends that companies borrow as much as they can get away with and roll over the debt perpetually, to maximize return on equity.

In the long run this subsidy to large purchasers should inflate the market price of inputs for the laundromat industry, simultaneously increasing the market price and reducing the profitability of existing businesses, creating increasing pressure to sell out.

I think even without the "subsidy to large purchasers", the situation described would have a much simpler outcome: everyone and their mom would start laundromats and drive profitability well below 25%. And the market price of existing laundromats might well fall as a result, not increase as the post says.

I don't agree that the debt/capital distinction has changed all that much.  Personal debt (for a mortgage on a house you're occupying, or for student loans, or for other non-income-stream purposes) isn't much of a driver of economies or decisions at scale.  Corporate debt, as compared with share ownership, is still an important claim on future income/assets.  

I guess I'm saying the standard microenomic model dominates - profits are good, and debt represents reduction of future profits.  Investments (non-consumption lending or spending-with-expectation-of-future-returns) pretty much behave as you say.  Consumption spending never has.

It's not clear why you'd expect debt ties borrower and lender together more than share-based investment does.  Usually the opposite is claimed, and that matches my intuition as well.  

Or maybe I'm missing the "compared to what" in this claim.  Debt and shares are both "access to capital", and they have different result curves which lead to preferring one or the other for different risk profiles (and tax policy messes with this a lot).  But they're roughly the same in terms of how effectively the money can be deployed as capital.

edit: retracting this - I read the link and realized that the post's summary had very little context that tied it to the social justice roots of the concept.  I don't have a lot to say about the distribution of wealth, disconnected from use of capital to actually make stuff.