Debating Household Debt

INET grantee JW Mason has been engaged in an important debate with the Financial Times’ Matthew Klein over the relationship of household debt to income inequality

In a recent post, Matthew Klein of the Financial Times expressed support for the commonly held idea that the US household debt binge of the last 20 years was about income inequality. He was responding to a new paper by Institute grantee J.W. Mason who has argued that a number of different factors that affect measured household debt and consumption inequality tell a different story.

Mason responded to Klein and followed up on his original paper in this illuminating post, in which he shows the many different money flows that contribute to savings and consumption, on the one hand, and to debt dynamics on the other. Mason’s point (drawing from his own work and that will INET senior economist Arjun Jayadev) is that it is not possible to draw directly from savings data to make claims about debt, and that many stories told by both liberal and conservative economists about the rise of debt from income inequality are too facile.

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