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More Credit Card Hysteria from the NYTimes

Posted By David Evans On August 11, 2008 @ 2:59 pm In Payments, consumers, Economics | 1 Comment

In its continuing series of drivel on consumer debt this Sunday’s NY Times has a front page entitled [1] “Outside U.S., Credit Cards Tighten Grip.” It continues on to page 8 (don’t these guys have any advertising to run?) and even has an accompanying web site. Virtually the entire article is about how the expansion of credit cards globally, has led some people into ruinous debt. It is like writing an article on the spread of new drugs outside the US and counting up the number of people who died from side effects. There is not a single statistic on the fraction of credit-card holders who fall into debt so one can’t assess whether this is a serious or trivial problem. Nor is there any mention that being able to borrow money—and increasing liquidity—is a really good thing for economic development. Korea gets mentioned because of the weird credit card driven bank collapse there. The reporter doesn’t wonder why credit card lenders like people, go into so much debt that they can’t pay their bills (answer—uh, they don’t).

The fact that the NYTimes could spend so many words with so little serious analysis is truly awesome. It certainly raised a lot of questions in my mind. For example, the few times I’ve asked European colleagues about the generally acknowledged lack of use of credit cards the answer I get is that credit cards have to compete with other forms of lending. It isn’t that these people don’t have other sources of financing. How widespread that is, I do not know. The reporter assures us that it isn’t true in Turkey—there’s just family lending. If I were a Turk, I’m not so sure I’d rather be in debt to dad-in-law than my local Turkish credit-card issuer.

Most of the western world threw off the shackles of religious prohibitions against lending—usury laws—in the middle ages. By the time of the industrial revolution borrowing was well accepted. It has led to an enormous increase in social wealth. Who is the NY Times to criticize Turkey and other countries for getting the accoutrements of economic development—including being able to borrow against future income? Like many industries credit card has excesses—some of which are caused by people acting badly, and others caused by banks taking advantage of people. But those excesses should always be put in the context of the greater good so that we don’t mislead people and politicians into seeking medicine that cures the few and kills the many.

Especially for non-US readers of this blog, I’d encourage you to send me any facts that you think support or don’t support this article.


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URLs in this post:
[1] “Outside U.S., Credit Cards Tighten Grip.”: http://www.nytimes.com/2008/08/10/business/worldbusiness/10card.html#
[2] Image: http://www.addthis.com/bookmark.php

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