| Yes and no. I purposely chose the mathematical notation rather than the more common economical terms to convey a different idea. If you look at the instantaneous\* derivative, it's not the fact that you owe the federal government $2M for that MD that counts but rather your monthly obligation. Debt doesn't matter, required repayment per unit of time does - so almost like cash-basis accounting. Finding a $100 on the street or borrowing $100 from a friend are the same in terms of their addition to your instantaneous wealth, it's the fact that one needs to be repaid that detracts from your "actual" wealth, and the repayment period matters. Compare the lifestyle of two neighbors working at the same institution making the same amount of money that each took out $500k mortgages to buy their identical houses, only one took it out for 15 years and the other for 30. On day 1, they both take the same hit to their net worth, but that doesn't change their wealth derivative in and of itself, it's the rate of paying it back that you should be counting. That explains why one college educated individual can get a loan for $1000 from the bank and at time 0 they are, under this metric, better off than someone that needed to hit up a payday loans place for the same loan but at a higher interest rate. They both "earned" the same amount of money, and may even "spend" it on the same thing at the same rate, but when you take the repayment period into account (let's say 1 year vs 2 weeks, respectively) you can see why the graduate student is measurably better off. Just like stocks you hold aren't actually contributing to your day-to-day wealth (and as such aren't taxed) but it's when you cash out that you've either made or lost money. \* let's define an "instant" as a month, just to make things easier. |