Housing Bust Legacy? Too Much Fear of Debt


After the great American housing bubble blew up in 2008, taking the financial system and the economy with it, there was an often-bitter debate about the underlying causes. Why had housing prices been driven to unsustainable heights in the first place? Were Americans borrowing to overconsume, or were they just trying to make a quick buck? The answer matters because it will guide future policy.

One hypothesis — let’s call it the debt hypothesis — was that homeowners chose to take on too much housing debt, and that this debt allowed prices to rise above reasonable levels. A duo of well-known economists, Princeton University’s Atif Mian and the University of Chicago’s Amir Sufi, have advanced this idea in a magisterial recent book, “House of Debt.” The debt hypothesis is appealing both to many conservatives (who think government policy encouraged overborrowing), and to many liberals (who think that the unscrupulous finance industry tricked borrowers into piling on too much debt)…

Housing Bust Legacy? Too Much Fear of Debt

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