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