So the real story of why debt hangovers hurt growth operates mainly through the demand side: corporations and individuals that are belt-tightening, or worse, faced with catastrophic failure, rein in their spending. But that’s not what you hear from the Times:
You can say that servicing the debt causes businesses to have to reign in spending, or that new debt becomes too expensive, and businesses have to tighten their belts rather than borrow more.
What the heck is NC arguing about?
It doesn't matter if a given business defaults or restructures to deal with its inconvenient debt maturation. What matters, is that there was a period of easy credit, which will be followed by a period of not-so-easy credit, or belt-tightening, or whatever you want to call it. I didn't really see the NYT piece as singing the praises of easy credit.
Smith is calling out the NYT for focusing on the symptom of debt overhang rather than the disease of issuing it?
First, this section makes consumer borrowing sound virtuous. For the most part, it isn’t. Academic studies have repeatedly found that household debt levels are negatively correlated with economic growth. In other words, this depiction of individuals borrowing to fund consumption is the neoliberal model that has been in place in the US since the early 1980s: of having consumers rely on borrowing to achieve rising standards of living rather than wage growth. We hit the limits of that approach with the 2008 crisis.
Not sure why NC switched to households, and I don't understand where wage growth comes into it.
Second, as we’ve said repeatedly, businessmen do not borrow and invest because money is on sale. They borrow and invest because they see a business opportunity.
Or because they want to buyback stock and issue dividends or else the board of directors will fire them?
I just don't get why NC is so riled up. It doesn't seem like the NYT article was apologist at all. It seems more like NC had an anti-neoliberal rant on deck, and this NYT piece was the excuse.