The start of 2016 has renewed debates about the significance of the UK’s household debt levels: does household debt prevent a sustainable recovery? are warnings of a ‘debt bomb’ overblown? Debates within the Bank of England ask whether household debt levels are a strategic threat or an indirect threat? Are Britons a nation of ‘debt bingers‘ or are they dependent on debt to fuel the post-crash recovery?
What these current debates fail to address is that debt is the defining feature of contemporary finance-led growth. What is known about debt – namely how it links household finances to the wider ‘macro’ economy – is limited by the rigid categories and established frameworks of contemporary economics. Principally, it lacks the ability to understand how money is created, how banks operate and how households mediate these activities. Without the relevant economic ideas policy makers cannot address the problems created by historically unprecedented levels of debt currently held by UK households.
Debt is transforming the economy, at first creating economic activity and then destroying it. Households are vastly unequal, some have benefited from debt-led growth while a growing number are made much worse off. This reality directly inhibits the ability to build a balanced and sustainable economy.
I will be talking about ‘why household debts matter’ in more detail on March 10th, together with the esteemed heterodox economist Ha Joon Chang, as part of the New Economics Public Lectures sponsored by Shadow Chancellor John McDonnell in Norwich (18:30 start)