The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [66]
One direct consequence of inequality identified by some economists is that it directly drove poorer households to borrow more. Part of the debt burden, including the subprime mortgage borrowing that helped catalyze the financial crisis, is due to people whose incomes hadn’t risen much trying to keep their living standards tracking those of their neighbors. During the boom years, nobody could have avoided ads and magazine articles displaying enticing consumer goodies. Luckily, the ads for personal loans and credit cards were equally apparent. According to Raghuram Rajan: “Easy credit has been used as a palliative throughout history by governments that are unable to address the deeper anxieties of the middle class directly.”40 This does not imply a conscious plan on the part of governments to burden the poor with unsustainable debt, but simply taking the line of least resistance by allowing financial services providers to market such products ensured that was the result. What’s more, it helped the boom continue and was even rationalized by some commentators as contributing to greater equality by allowing low earners to acquire assets—always assuming they could continue to meet the repayments. As if that’s not bad enough, inequality has other longer-term consequences too.
CONSEQUENCES OF INEQUALITY FOR WELL-BEING
In the absence of any evidence on the impact on growth per se, what about evidence of the impact of inequality on more direct measures of well-being?
Some researchers are passionate advocates of a causal link between increased inequality and worse outcomes in a wide range of social indicators, from health and life expectancy to teenage pregnancy and crime. In their recent book The Spirit Level, Richard Wilkinson and Kate Pickett make exactly this argument and what’s more suggest that in an unequal society even the people at the top of the pile in terms of income have a reduced level of welfare compared to their counterparts in more equal places.
Much of their evidence consists of presenting simple correlations between measures of inequality in different countries and measures of some social bad such a depression rates or prevalence of heart disease. In a few cases they also present time trends in inequality and compare it with time trends in another variable, such as crime rates. They write:
It is a remarkable paradox that, at the pinnacle of human material and technical achievement, we find ourselves anxiety ridden, prone to depression, worried about how others see us, unsure of our friendships, driven to consume and with little or no community life. Lacking the relaxed social contact and emotional satisfaction we all need, we seek comfort in over-eating, obsessive shopping and spending, or become prey to excessive alcohol, psychoactive medicines and illegal drugs. . . . The truth is that both the broken society and the broken economy resulted from the growth of inequality.41
This picture of a broken society echoes many other authors writing about either the consumer debt–fueled boom or its fallout in the financial and economic crisis.42 It echoes a common theme of many critiques of capitalism.
Sometimes, after reading one of these popular jeremiads against consumerism, I do wonder whether these authors actually know any normal people who like to garden, play soccer at the weekend, join book clubs, or watch TV or movies. The statistics are pretty clear that a rising share of consumer spending, and a rising share of our leisure time, goes to activities like these rather than on material goods. The price of many goods has been declining even as their quality and capabilities have increased. This is one aspect of the