Credit

The famous poster of "The New Yorker's View of the World" is a classic and a much appreciated piece of self-parody. Whether the New Yorker's view of the economy achieves similar renown is hard to tell. The March 16 Style Issue has several articles on the economy that have me wondering. See John Cassidy's column on Obama's economics and Patricia Marx's "Made in U.S.A."

James Surowiecki's "House of Cards" describes how credit card companies are now "trying to get rid of customers." They were once optimistic that customers will make purchases, make payments and (best of all) run balances and pay interest. These chargers were politely labeled "revolvers". In bad times, the credit card companies reverse course and actually pay some customers to go away.

Surowiecki calls it the "paradox of deleveraging: it's good for borrowers to reduce their debt, and good for lenders to be more rigorous in their standards, but when everyone deleverages at once it does damage."

When I see new business models discovered, I see good news. Much of our prosperity (even in 2009) comes from entrepreneurial discovery of better mouse traps and better business models. Todd Zywicki reminds us that credit card and revolving credit are a good thing: the middleman function of credit institutions extended to areas where it had been largely absent. Some of us are old enough to recall purchases of major items on the lay-away plan.

Zywicki reminds us that GM surpassed Ford in the early 20th century because they were first to catch on to the idea that people like to drive their cars while they are paying for them, rather than after.