Income Inequality: Not Your Usual Suspect in Understanding the Financial Crash and Great Recession
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Matthew P. Drennan
Abstract
Rising income inequality was a major factor in the surge of household debt that brought on the financial crash and Great Recession. Other studies have identified rising household debt as a cause of the crash but not income inequality as a cause of the rising debt. Here the unusual rise in household debt post 1995 is documented. Econometric evidence links rising income inequality to the rise of household debt. Consumer expenditure data shows that prices of major necessities —shelter, healthcare and education—rose faster than inflation as demand by high-income households surged. In order to maintain their consumption of such necessities, lower-income households resorted to massive borrowing. Their rising debt precipitated the financial crash and Great Recession. That link was overlooked by mainstream economists because they adhere to a theory of household consumption that posits no role for income inequality.
© 2017 by Theoretical Inquiries in Law
Articles in the same Issue
- Theoretical Inquiries in Law
- Introduction
- International Tax and Global Justice
- How Charitable Is the Charitable Contribution Deduction?
- Inequality Rediscovered
- Competence, Desert and Trust — Why are Women Penalized in Online Product Market Interactions?
- Income Inequality: Not Your Usual Suspect in Understanding the Financial Crash and Great Recession
- The New Inequality of Old Age: Implications for Law
- Forces of Federalism, Safety Nets, and Waivers
- Putting Distribution First
- What’s Law Got to Do with It? Crisis, Growth, Inequality and the Alternative Futures of Legal Thought
- In Memory of Tamara Lothian
Articles in the same Issue
- Theoretical Inquiries in Law
- Introduction
- International Tax and Global Justice
- How Charitable Is the Charitable Contribution Deduction?
- Inequality Rediscovered
- Competence, Desert and Trust — Why are Women Penalized in Online Product Market Interactions?
- Income Inequality: Not Your Usual Suspect in Understanding the Financial Crash and Great Recession
- The New Inequality of Old Age: Implications for Law
- Forces of Federalism, Safety Nets, and Waivers
- Putting Distribution First
- What’s Law Got to Do with It? Crisis, Growth, Inequality and the Alternative Futures of Legal Thought
- In Memory of Tamara Lothian
