Unbound by Boushey Heather

Author:Boushey, Heather [Boushey, Heather]
Language: eng
Format: azw3
ISBN: 9780674919310
Publisher: Harvard University Press
Published: 2019-10-14T16:00:00+00:00

Consuming Puzzles

While the evidence presented above indicates that income and wealth inequality distorts consumption, there are lingering puzzles in the data. Key among them is that over the period from the late 1970s to today, income for the bottom half of the US income distribution hasn’t grown—and has actually fallen for those at the very bottom—yet aggregate consumption, as measured by the national accounts, did not fall in tandem. The solution to this puzzle lies in understanding debt. Many US families seemed to treat credit just like it was cash, maintaining their spending by tapping into home equity as house prices rose and taking on more consumer credit.28

Up until the 1980s, across all US families, total debt was about 60 percent of annual income. Over the following three decades, families’ debts rose significantly. By the time the housing bubble burst in 2008, debts of households and nonprofits were equal to 100 percent as a share of GDP. Even at the end of 2018, a decade after the last recession began, household and nonprofit debt was equal to 77 percent of GDP and total household debt in the United States amounted to $13.5 trillion, 7 percent above the peak in the third quarter of 2008. (See Figure 5.1.) Indeed, the savings rate among the bottom 90 percent fell steadily throughout the past few decades into negative territory by the late 1990s, according to data from Piketty, Saez, and their frequent coauthor Gabriel Zucman.29

Figure 5.1 Household debt has grown significantly since the 1950s

US household and nonprofit liabilities relative to GDP, 1952–2018.

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