Falling Income and Debt: Comparing Views of a Major Cause of the Great Recession

Thomas E. Lambert

Research output: Contribution to journalArticle

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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.
Original languageEnglish
Pages (from-to)249-261
Number of pages13
JournalWorld Review of Political Economy
Volume2
Issue number2
Publication statusPublished - 2011
Externally publishedYes

Fingerprint

Income
Great Recession
Debt
Factors
Interest rates
Insurance
Economic cooperation
Recession
Mortgage-backed securities
Speculation
China
Mortgage lending
Wages
Econometric analysis
Real estate
Home ownership
Developing nations
Current account deficit
Borrowing
Central bank

Keywords

  • Great Recession
  • household income
  • household debt
  • housing bubble
  • mortgage

Cite this

Falling Income and Debt: Comparing Views of a Major Cause of the Great Recession. / Lambert, Thomas E. .

In: World Review of Political Economy, Vol. 2, No. 2, 2011, p. 249-261.

Research output: Contribution to journalArticle

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