Did inequality cause the U.S. financial crisis?

Journal of Economic Surveys

Volumn 28, Issue 3, 2014, Pages 421-448

  Van Treeck, Till ^a  

^a UNIVERSITY OF DUISBURG ESSEN   (Germany)

Author keywords

Consumption theory; Great recession; Household debt; Income inequality

Indexed keywords

DEBT; ECONOMIC THEORY; FINANCIAL CRISIS; HOUSEHOLD INCOME; INCOME DISTRIBUTION; SAVINGS; THEORETICAL STUDY; WAGE GAP;

UNITED STATES;

EID: 84895886039     PISSN: 09500804     EISSN: 14676419     Source Type: Journal    
DOI: 10.1111/joes.12028     Document Type: Article

References (128)

1. Acemoglu, D. (1999) Changes in unemployment and wage inequality: an alternative theory and some evidence. American Economic Review 89(5): 1259-1278.
2. Acemoglu, D. (2011) Thoughts on inequality and the financial crisis. In Presentation held at the American Economic Association. Available at http://economics.mit.edu/files/6348 (Last accessed 10 May 2012).
3. Alicke, M.D. and Govorun, O. (2005) The better-than-average effect. In M.D. Alicke, D.A. Dunning and J.I. Krueger (eds), The Self in Social Judgment (pp. 85-106). New York: Psychology Press.
4. Atkinson, A. and Morelli, S. (2010) Inequality and banking crises: a first look. Paper prepared for the European Labour Forum in Turin organised by the International Training centre of the International Labour Organization (ILO).
5. Atkinson, A. and Morelli, S. (2011) Economic crises and inequality. Human Development Research Paper 6.
6. Atkinson, A., Piketty, T. and Saez, E. (2011) Top incomes in the long run of history. Journal of Economic Literature 49(1): 3-71.
7. Attanasio, O., Battistin, E. and Ichimura, H. (2007) What really happened to consumption inequality in the United States? In Ernst R. Berndt and Charles R. Hulten (eds), Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches (pp. 515-543). Chicago: University of Chicago Press.
8. Auten, G. and Gee, G. (2009) Income mobility in the United States: new evidence from income tax data. National Tax Journal 67(2): 301-328.
9. Autor, D.H., Katz, L.F. and Krueger, A.B. (1998) Computing inequality: have computers changed the labor market?. The Quarterly Journal of Economics 113(4): 1169-1213.
10. Barba, A. and Pivetti, M. (2009) Rising household debt: Its causes and macroeconomic implications - a long-period analysis. Cambridge Journal of Economics 33: 113-137.
11. Battistin, E. (2003) Errors in survey reports of consumption expenditures. IFS Working Papers (W03/07), Institute for Fiscal Studies.
12. Bell, L.A. and Freeman, R.B. (2001) The incentive for working hard: explaining hours worked differences in the US and Germany. Labour Economics 8(2): 181-202.
13. Bertrand, M. and Morse, A. (2011) Consumption contagion: does the consumption of the rich drive the consumption of the less rich?. Available at http://faculty.chicagobooth.edu/adair.morse/research/NBER_reporter_summaryAug2011.pdf (Last accessed 10 May 2012).
14. Blundell, R. (2011) From income to consumption: understanding the transmission of inequality. Focus 28(1): 23-30.
15. Blundell, R., Pistaferri, L. and Preston, I. (2008) Consumption inequality and partial insurance. American Economic Review 98(5): 1887-1921.
16. Bordo, M.D. and Meissner, C.M. (2012) Does inequality lead to a financial crisis? Journal of International Money and Finance, 31(8): 2147-2161.
17. Bosworth, B., Burtless, G. and Sabelhaus, J. (1991) The decline in saving: evidence from household surveys, Brookings Papers on Economic Activity 1: 183-256.
18. Boushey, H and Weller, C. (2008) Has growing inequality contributed to rising household economic distress?. Review of Political Economy 20(1): 1-22.
19. Bowles, S. and Park, Y. (2005) Emulation, inequality and work hours: was Thorsten Veblen right? The Economic Journal 115: F397-F412.
20. Bradbury, K.L. and Katz, J. (2002) Womens labor market involvement and family income mobility when marriages end. New England Economic Review (Q 4): 41-74.
21. Bratt, R.G. (2008) Homeownership as social policy in the U.S.: risk and responsibility after the subprime crisis. In Paper presented at the ENHR Working Group Building on Home Ownership: Housing Policies and Social Strategies. November 13th and 14th 2008, The Netherlands: Delft University of Technology.
22. Brown, C. (2008) Inequality, Consumer Credit and the Saving Puzzle. Cheltenham: Edward Elgar.
23. Brownlee, W.E. (2004) Federal Taxation in America: A Short History (2nd edn). Cambridge, UK: Cambridge University Press.
24. Card, D., Lemieux, T. and Riddell, W.C. (2004) Unions and wage inequality. Journal of Labor Research 25(4): 519-562.
25. Carlin, W. and Soskice, D. (2008) Reforms, macroeconomic policy and economic performance in Germany. In R. Schettkat and J. Langkau (eds), Economic Policy Proposals for Germany and Europe (pp. 72-118). Abingdon, UK: Routledge.
26. CBO (2010) Trends in Federal tax revenues and rates. Available at http://www.cbo.gov/publications/collections/tax/2010/all_tables.xls (Last accessed 12 May 2012).
27. Christen, M. and Morgan, R.M. (2005) Keeping up with the Joneses: analyzing the effect of income enequality on consumer borrowing. Quantitative Marketing and Economics 3(2): 145-173.
28. Cynamon, B. and Fazzari, S. (2008) Household debt in the consumer age - source of growth and risk of collapse. Capitalism and Society 3: 1-30.
29. Dube, A., Lester, T.W. and Reich, M. (2011) Do frictions matter in the labor market? Accessions, separations, and minimum wage effects. Institute for Research on Labor and Employment. Working Paper Series (1622839). UC Berkeley: Institute of Industrial Relations.
30. Duesenberry, J.S. (1962 (1949)) Income, Saving and the Theory of Consumer Behavior. Cambridge, Massachusetts: Harvard University Press.
31. Dutt, A.K. (2006) Maturity, stagnation and consumer debt: a Steindlian approach. Metroeconomica 57: 339-364.
32. Eccles, M.S. (1951) Beckoning Frontiers: Public and Personal Recollections. Knopf: New York.
33. FCIC (Financial Crisis Inquiry Commission) (2011). The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States.
34. Fisher, J.D. and Johnson, D.S. (2006) Consumption mobility in the United States: evidence from two panel data sets. The B.E. Journal of Economic Analysis and Policy 6(1): Article 16.
35. Fitoussi, J.-P. and Stiglitz, J.E. (2009) The ways out of the crisis and the building of a more cohesive world. Document de Travail, OFCE Document de Travail 17.
36. Frank, R.H. and Cook, P. (1995) The Winner-take-all Society: How More and More Americans Compete for Ever Fewer and Bigger Prizes, Encouraging Economic Waste, Income Inequality, and an Impoverished Cultural Life. New York: Free Press.
37. Frank, R.H. (1985) The demand for unobservable and other nonpositional goods. American Economic Review 75(1): 101-16.
38. Frank, R.H. (1997) The frame of reference as a public good. The Economic Journal 107: 1832-1847.
39. Frank, R.H. (1999) Luxury Fever: Why Money Fails to Satisfy in an Era of Excess. New York: Free Press.
40. Frank, R.H. (2005) Positional externalities cause large and preventable welfare losses. American Economic Association Papers and Proceedings 95(2): 137-141.
41. Frank, R.H. (2007) Falling Behind: How Rising Inequality Harms the Middle Class. Berkeley: University of California Press.
42. Frank, R.H., Levine, A.S. and Dijk, O. (2010) Expenditure Cascades. Available at http://ssrn.com/abstract=1690612 (last accessed May 2012).
43. Freeman, R.B. (2007) Labor market institutions around the world. NBER Working Papers (13242), National Bureau of Economic Research, Inc.
44. Friedman, M. (1957) A Theory of the Consumption Function. Princeton: Princeton University Press.
45. Galbraith, J.K. (1997 (1954)) The Great Crash of 1929. Boston, New York: Mariner Books.
46. Galbraith, J.K. (2012) Inequality and Instability: A Study of the World Economy Just Before the Great Crisis. New York: Oxford University Press.
47. Gilens, M. (2005) Inequality and democratic responsiveness. Public Opinion Quarterly 69: 778-796.
48. Gittleman, M. and Joyce, M. (1999) Have family income mobility patterns changed? Demography 36(3): 299-314.
49. Godley, W. and Lavoie, M. (2007) Monetary Economics: An Integrated Approach to Credit, Money, Income, Production, and Wealth. Basingstoke: Palgrave Macmillan.
50. Goldin, C. and Katz, L.F. (2008) The Race between Education and Technology. Cambridge: Harvard University Press.
51. Goldin, C. and Margo, R.A. (1992) The great compression: the wage structure in the United States at mid-century. The Quarterly Journal of Economics 107(1): 1-34.
52. Gordon, R.J. and Dew-Becker, I. (2008) Controversies about the rise of American inequality: a survey. N.B.E.R. Working Paper, National Bureau of Economic Research, Inc.
53. Gosling, A. and Lemieux, T. (2004) Labor market reforms and changes in wage inequality in the United Kingdom and the United States. In D. Card, R. Blundell and R.B. Freeman (eds), Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000 (pp. 275-312). Chicago: University of Chicago Press.
54. Gottschalk, P. and Moffitt, R. (1994) The growth of earnings instability in the U.S. labor market. Brookings Papers On Economic Activity (2): 217-254.
55. Greenspan, A. (1996) Job Insecurity and Technology, in: H.C. Fuhrer and J. Sneddon Little (eds), Technology and Growth, Conference Proceedings (pp. 173-181) Boston, MA: Federal Reserve Bank of Boston.
56. Guidolin, M. and La Jeunesse, E.A. (2007) The decline in the U.S. personal saving rate: is it real and is it a puzzle?. Review (89/06), Federal Reserve Bank of St. Louis, 491-514.
57. Hacker, J.S. and Pierson, P. (2010) Winner-Take-All Politics: How Washington Made the Rich Richer - and Turned Its Back on the Middle Class. New York: Simon & Schuster.
58. Hall, R.E. (1978) The stochastic implications of the life cycle-permanent income hypothesis: Theory and evidence. Journal of Political Economy 86: 971-987.
59. Heathcote, J., Perri, F. and Violante, G.L. (2010) Unequal we stand: an empirical analysis of economic inequality in the United States: 1967-2006. Review of Economic Dynamics 13(1): 15-51.
60. Hein, E., Truger, A. (2012) Finance-dominated capitalism in crisis-the case for a global Keynesian New Deal, Journal of Post Keynesian Economics 35(2): 183-210.
61. Hobson, J.A. (1909) The Industrial System: An Inquiry into Earned and Unearned Income. London, UK: Longmans, Green, and Co.
62. Hyman, L. (2011) Debtor Nation: The History of America in Red Ink. Princeton: Princeton University Press.
63. Iacoviello, M. (2008) Household debt and income inequality, 1963-2003. Journal of Money, Credit and Banking 40(5): 929-965.
64. IMF & ILO (2010) The challenges of growth, employment and social cohesion, discussion document. International Labour Organization and International Monetary Fund, Proceeding from the joint ILO-IMF Conference, Oslo, Norway, September 13, 2010.
65. Johnson, S. (2011) Did the poor cause the crisis? Project-Syndicate. Available at http://www.project-syndicate.org/commentary/johnson16/English (Last accessed 10 May 2012).
66. Jones, J.M. (2007) Public: family of four needs to earn average of $52, 000 to get by, GALLUP news service. Available at http://www.gallup.com/poll/26467/public-family-four-needs-earn-average-52000-get.aspx (Last accessed 10 May 2012).
67. Katz, L.F. and Autor, D.H. (1999) Changes in the wage structure and earnings inequality. In O. Ashenfelter and D. Card (eds), Handbook of Labor Economics (pp. 1463-1555). San Diego, USA; Amsterdam, The Netherlands Elsevier.
68. Kopczuk, W., Saez, E. and Song, J. (2010) Earnings inequality and mobility in the United States: evidence from social security data since 1937. The Quarterly Journal of Economics 125(1): 91-128.
69. Krueger, D. and Perri, F. (2003) On the welfare consequences of the increase in inequality in the United States. NBER Working Paper, National Bureau of Economic Research, Inc.
70. Krueger, D. and Perri, F. (2006) Does income inequality lead to consumption inequality? Evidence and theory. Review of Economic Studies 73: 163-193.
71. Krugman, P. (2010) Inequality and crises: New York Times blog "The Conscience of a liberal" (June). Available at http://krugman.blogs.nytimes.com/2010/06/28/inequality-and-crises/ (Last accessed 10 May 2012).
72. Kumhof, M. and Ranciere, R. (2010) Inequality, leverage and crises. IMF Working Papers (268), International Monetary Fund.
73. Kumhof, M., Lebarz, C., Ranciere, R., Richter, A.W. and Throckmorton, N.A. (2012) Income inequality and current account imbalances. IMF Working Papers (12/08), International Monetary Fund.
74. Lavoie, M. (2012) Consumer theory. In J.E. King (ed.), The Elgar Companion to Post Keynesian Economics (pp. 101-105). Cheltenham, UK: Edward Elgar.
75. Lee, D.S. (1999) Wage inequality in the United States during the 1980s: rising dispersion or falling minimum wage?. The Quarterly Journal of Economics 114(3): 977-1023.
76. Lemieux, T., MacLeod, W.B. and Parent, D. (2009) Performance pay and wage inequality. The Quarterly Journal of Economics 124(1): 1-49.
77. Levy, F. and Temin, P. (2007) Inequality and institutions in 20th century America. Working Paper (17), Massachusetts Institute of Technology, Revised June 27, 2007.
78. Lucchino, P. and Morelli, S. (2012) Inequality, debt and growth. Report for the Resolution Foundation.
79. Malthus, T. (1820) Principles of Political Economy Considered with a View to their Practical Application. London: John Murray.
80. Lysandrou, P. (2011) Global inequality, wealth concentration and the subprime crisis: a Marxian commodity theory analysis. Development and Change 42(1): 183-208.
81. Marglin, S. (1984) Growth, Distribution and Prices. Cambridge: Harvard University Press.
82. McCoy, K. (2004) Sleeping less than eight hours a night may stimulate your appetite, goldlite hypnosis institute. Available at http://www.goldlitehypnosisinstitute.com/Sleep_Less_Making_U_Hungry.html (Last accessed 10 May 2012).
83. Milanovic, B. (2009) Two views on the cause of the global crisis, Yale Global Online, http://yaleglobal.yale.edu/content/two-views-global-crisis.
84. Modigliani, F. and Brumberg, R. (1954) Utility analysis and the consumption function: an interpretation of cross-section data. In K.K Kurihara (ed.), Post-Keynesian Economics (pp. 388-436). New Brunswick: Rutgers University Press.
85. Moffitt, R.A. and Gottschalk, P. (2002) Trends in the transitory variance of earnings in the United States. Economic Journal 112(478): C68-C73.
86. Moffitt, R.A. and Gottschalk, P. (2008) Trends in the transitory variance of male earnings in the U.S.: 1970-2004. Boston College Working Papers in Economics (697), Boston College Department of Economics.
87. Moore, D.W. (2003) Half of young people expect to strike it rich. GALLUP News Service. Available at http://www.gallup.com/poll/7981/half-young-people-expect-strike-rich.aspx (Last accessed 10 May 2012).
88. Murphy, K.M., Shleifer, A. and Vishny, R.W. (1991) The allocation of talent: implications for growth. The Quarterly Journal of Economics 106(2): 503-530.
89. Neumark, D. and Postlewaite, A. (1998) Relative income concerns and the rise in married womens employment. Journal of Public Economics 70: 157-183.
90. Neumark-Sztainer, D., Nahhan, P., Story, M., Croll, J. and Perry, C. (2003) Family meal patterns: associations with sociodemographic characteristics and improved dietary intake among adolescents. Journal of the American Dietetic Association 103: 317-322.
91. Olney, M.L. (1991) Buy Now, Pay Later: Advertising, Credit, and Consumer Durables in the 1920s. Chapel Hill: University of North Carolina Press.
92. Olney, M.L. (1999) Avoiding default: the role of credit in the consumption collapse of 1930. The Quarterly Journal of Economics 114(1): 319-335.
93. Palley, T.I. (1994) Debt, aggregate demand, and the business cycle: an analysis in the spirit of Kaldor and Minsky. Journal of Post Keynesian Economics 16: 371-390.
94. Palley, T.I. (2002) Economic contradictions coming home to roost? Does the U.S. economy face a long-term aggregate demand generation problem?. Journal of Post Keynesian Economics 25: 9-32.
95. Palley, T.I. (2010) The relative permanent income theory of consumption: a synthetic Keynes-Duesenberry-Friedman model. Review of Political Economy 22(1): 41-56.
96. Palley, T.I. (2012) From Financial Crisis To Stagnation: The Destruction of Shared Prosperity and the Role of Economics. Cambridge, UK: Cambridge University Press.
97. Parker, J.A. (1999) Spendthrift in America? On two decades of decline in the U.S. saving rate. NBER Macroeconomics Annual. The University of Chicago Press, 317-370.
98. Philippon, T. and Resheff, A. (2009) Wages and human capital in the U.S. finance industry: 1909-2006. NBER Working Paper 14644.
99. Piketty, T. and Saez, E. (2003) Income inequality in the United States, 1913-1998. Quarterly Journal of Economics 118(1): 1-39.
100. Piketty, T. and Saez, E. (2007) How progressive is the U.S. federal tax system? A historical and international perspective. Journal of Economic Perspectives 21(1): 3-24.
101. Pollin, R. (1988) The growth of U.S. household debt: demand-side influences, Journal of Macroeconomics 10(2): 231-248.
102. Pollin, R. (1990) Deeper in Debt: The Changing Financial Conditions of U.S. Households. Washington, DC: Economic Policy Institute.
103. Putnam, R. (2000) Bowling Alone: The Collapse and Revival of American Community. New York: Simon and Schuster.
104. Rajan, R.G. (2005) Has financial development made the world riskier? NBER Working Papers (11728), National Bureau of Economic Research, Inc.
105. Rajan, R. (2010) Fault Lines: How Hidden Fractures Still Threaten the World Economy. Princeton NJ: Princeton University Press.
106. Reich, R. (2010) Aftershock: The Next Economy and America's Future. New York: Knopf.
107. Reinhart, C.M. and Rogoff, K.S. (2010) This Time is Different: Eight Centuries of Financial Folly. Princeton NJ: Princeton University Press.
108. Roberts, P. (2010) How the Economy Was Lost. Princeton NJ: AK Press.
109. Rosen, S. (1981) The economics of superstars The American Economic Review 71(5): 845-858.
110. Roubini, N. (2011) The instability of inequality. Project Syndicate. Available at http://www.project-syndicate.org/commentary/the-instability-of-inequality (Last accessed 12 May 2012).
111. Sabelhaus, J. and Song, J. (2009) Earnings volatility across groups and time. National Tax Journal 62(2): 347-364.
112. Schor, J.B. (1998) The Overspent American: Upscaling, Downshifting, and the New Consumer. Princeton NJ: Basic Books.
113. Shiller, R.J. (2008) The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It. Princeton NJ: Princeton University Press.
114. Slesnick, D.T. (1992) Aggregate consumption and saving in the postwar United States. The Review of Economics and Statistics 74(4): 585-597.
115. Slesnick, D.T. (2001) Consumption and Social Welfare: Living Standards and Their Distribution in the United States. Princeton: Cambridge University Press.
116. Smith, A. (1776 (2009)) An Inquiry Into the Nature and Causes of the Wealth of Nations. New York: Prometheus Books.
117. Soman, D. and Cheema, A. (2002) The effect of credit on spending decisions: the role of the credit limit and credibility, Marketing Science 21(1): 32-53.
118. Stiglitz, J.E. (2008) Toward a general theory of consumerism: reflections on Keynes' economic possibilities for our grandchildren. In L. Pecchi and G. Piga (eds), Revisiting Keynes: Economic Possibilities for Our Grandchildren (pp. 41-86) Princeton NJ: MIT Press.
119. Stiglitz, J.E. (2012a) The Price of Inequality: How Today's Divided Society Endangers Our Future. W. W. Princeton NJ: Norton & Company.
120. Stiglitz, J.E. (2012b) Macroeconomic fluctuations, inequality, and human development. Human Development and Capabilities 13(1): 31-58.
121. Stockhammer, E. (2012) Rising inequality as a root cause of the present crisis, Political Economy Research Institute, No. 282.
122. Van Treeck, T. and Sturn, S. (2012) Income inequality as a cause of the great recession? A survey of current debates. Conditions of work and employment series 39, International Labour Organization.
123. Vaughan, D.R. (2004) Exploring the use of the views of the public to set income poverty thresholds and adjust them over time, U.S. Census Bureau.
124. Veblen, T. (1899 [2007]) The Theory of the Leisure Class. Oxford UK: Oxford University Press.
125. Wade, R. (2010) The great slump: What comes next? Economic & Political Weekly xlv(47): 54-62.
126. Warren, E. and Warren Tyagi, A. (2004) The Two-Income Trap. New York: Basic Books.
127. Wolff, E.N. (2010) Recent trends in household wealth in the United States - rising debt and the middle-class squeeze - an update to 2007. Economics Working Paper (589), The Levy Economics Institute.
128. Zezza, G. (2008) U.S. growth, the housing market, and the distribution of income. Journal of Post Keynesian Economics 30(3): 375-401.