The issue of debt has come up here a fair number of times before – for instance, when when discussing a recent Margaret Atwood book. In the United States, one of the things driving the Tea Party movement seems to be anxiety about the deficit. People rightly worry about burdening future generations with debt that cannot be managed.
That being said, it does seem to me that there is a mathematical reality that is sometimes ignored, when discussing debt. Namely, that it is the unavoidable arithmatic counterpart to saving. If we think it is laudable to save for the future, we must accept that when we save we are lending to others, and thus making them indebted. The world as a whole cannot be a net saver or a net debtor.
I think the critical distinction between good debt and bad debt is whether the purpose being served is sustainable or not. One minor example is avoiding short-term cash crunches. Having access to credit makes it easier for people to avoid situations where they are basically solvent, but desperately short on liquid funds for a brief span of time. Much more importantly, debt can be used to make productive investments.
The most virtuous arrangement is one where people who need money in the future (say, for retirement) lend it temporarily to those who can make good use of it now (say, by expanding businesses that serve human needs). There is the caveat – of course – that externalities like climate change need to be taken into consideration. That said, I believe that human welfare can continue to increase even as our biophysical impact on the planet shrinks. We just need to invest in clever ways, such as in mechanisms to improve efficiency and in zero-carbon and renewable ways of producing energy.