1/6
This is a very good discussion by @RebeccaStropoli of the Mian, Straubb, Sufi paper on why income inequality in the US can cause household debt to rise. Rising income inequality reduces underlying demand (because the rich consume very little...
review.chicagobooth.edu/economics/2021…
This is a very good discussion by @RebeccaStropoli of the Mian, Straubb, Sufi paper on why income inequality in the US can cause household debt to rise. Rising income inequality reduces underlying demand (because the rich consume very little...
review.chicagobooth.edu/economics/2021…
2/6
of their income), and so also reduces desired investment, which means, paradoxically, that rising income inequality increases desired savings while reducing desired investment.
But because total US savings must equal, by definition, total...
scholar.harvard.edu/files/straub/f…
of their income), and so also reduces desired investment, which means, paradoxically, that rising income inequality increases desired savings while reducing desired investment.
But because total US savings must equal, by definition, total...
scholar.harvard.edu/files/straub/f…
3/6
US investment minus the trade imbalance, if the savings of the rich exceed US investment, either the US must run a trade surplus (in fact it runs a large deficit), or some adjustment must occur that drives down overall savings for the whole economy.
US investment minus the trade imbalance, if the savings of the rich exceed US investment, either the US must run a trade surplus (in fact it runs a large deficit), or some adjustment must occur that drives down overall savings for the whole economy.
4/6
There are many possible adjustments – higher unemployment, asset-bubble driven wealth effects, fiscal deficits, etc. – but probably for political reasons the typical adjustment comes in the form of looser consumer lending standards, the automatic consequence of which is...
There are many possible adjustments – higher unemployment, asset-bubble driven wealth effects, fiscal deficits, etc. – but probably for political reasons the typical adjustment comes in the form of looser consumer lending standards, the automatic consequence of which is...
5/6
a rise in household debt, typically among households at the lower end of the income distribution.
This may at first seem counter-intuitive, but it is perfectly logical. If desired savings rise faster than desired investment, something else MUST happen to bring...
a rise in household debt, typically among households at the lower end of the income distribution.
This may at first seem counter-intuitive, but it is perfectly logical. If desired savings rise faster than desired investment, something else MUST happen to bring...
6/6
the two back into balance. If it isn't a trade surplus (let alone if there is a trade deficit), that "something else" must be a reduction in savings elsewhere in the economy.
carnegieendowment.org/chinafinancial…
the two back into balance. If it isn't a trade surplus (let alone if there is a trade deficit), that "something else" must be a reduction in savings elsewhere in the economy.
carnegieendowment.org/chinafinancial…
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