Inequality, Consumer Credit and the Saving Puzzle

Inequality, Consumer Credit and the Saving Puzzle

New Directions in Modern Economics series

Christopher Brown

Providing much needed context for current events like the sub-prime mortgage crisis, this timely book presents a vision of an economy evolved to greater dependence on consumer credit and analyzes the trade-offs and risks associated with it. While synthesizing the Keynesian theory of consumption with the Institutional theory of habit selection (brought up to date with new knowledge from evolutionary biology and neuroscience), this book represents an in-depth treatment of the macroeconomic dimensions of consumer credit and implications of recent financial innovations from a non-traditional economic approach.

Chapter 2: The Household Debt Surge and the Theory of Habit Selection

Christopher Brown

Subjects: economics and finance, institutional economics, post-keynesian economics


A principal thesis of this book is that increasing income inequality gives rise to a greater dependence on credit for the maintenance of consumption expenditure. A corollary to this thesis is that the (negative) effects of widening income disparities (with respect to output and employment) are likely to be more consequential if consumers are antipathetic to debt. The broadbased consumerism of modern life has therefore been enabled by a gradual leveling of social and psychological barriers to credit-financed spending. Indeed, many consumers today exhibit a willingness to borrow that nearly all among the previous generation would have found appalling. The purpose of this chapter is to give a theoretical explanation of this crucial development. The thesis is advanced that, in general, people borrow because their incomes are not adequate to afford a culturally sufficient market basket of goods and services, where cultural sufficiency signifies the individual capacity to ‘match goods to classes of social occasions [the aim of which is to] help create the social universe and find a creditable place in it’ (Douglas 1982, pp. 25–6). Soaring income inequality is associated with expanding consumer credit use and decreased saving for two (main) reasons: (1) it increases the disparity for many between actual income and the income required to purchase a culturally sufficient basket of goods and services; and (2) by actuating ever more public opulence by social elites, rising income skewness may diminish the cultural sufficiency inhering in a given...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information