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FALLING INCOME AND DEBT: COMPARING VIEWS OF A MAJOR CAUSE OF THE GREAT RECESSION
Abstract
Several recent editions of major mainstream economics textbooks list various causes of the 2007-09 global recession (also known as the "Great Recession"), which mostly include the following factors: lower mortgage lending standards, central banks keeping interest rates low, consumers borrowing too much money because of rising home prices, government agencies and policies encouraging home ownership and encouraging lenders to take on more risk, and a glut of savings from China and developing nations which fueled investments, current account deficits, and speculation in various global markets, especially US mortgage backed securities. These in turn drove up home prices in the United States and elsewhere and helped to fuel a rise in consumer debt in many nations. Meanwhile, this article's research has found that some heterodox economists and heterodox publications have raised these issues in addition to the issues of stagnant or falling wages/income and the growth of the financial, insurance and real estate sectors of most advanced capitalist nations as possible causes for the increase in consumer debt prior to the Great Recession. These last two factors, however, are mostly ignored in mainstream writings. To compare the validity of the claims of mainstream and heterodox views, econometric analysis is employed using data from the last two decades from Organization for Economic Cooperation and Development (OECD) nations. The heterodox and radical views seem to have some statistical support on their side and probably should not be ignored.
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References
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