Do We Eat Too Much? The Current Economic Crisis as a Result of Overconsumption

Abstract

Over the past 15 years, a fairly synchronised and steady increase of the current account deficits of the US and the UK has been witnessed, while at the same time real house prices and real wages in these two economies increased sharply. We analyse the offspring of the economic crisis of 2008 within the framework of Minsky's theory of financial crisis, and identify the reasons behind this development as the global imbalances. Our empirical results show that overconsumption in the US and UK caused unsustainable growth, which manifested first in real wage inflation. Within this development, neither the financial sector nor failed regulation is to blame, as financial intermediaries merely fulfilled their requirements as the vehicle between borrowers and lenders. Instead, we argue, our 'need' for overconsumption is to blame, and policy makers are required to address this issue as soon as possible in order to avoid another, probably more severe crisis in the long-run.

Health care and the future of economic growth: exploring alternative perspectives

“…One such perspective focuses on the role and level of private debt – both in causing the GFC but also in the world's persistent post-crisis woes. Jaworski and Weber (2011) suggest that long-term current account deficits and excessive private credit availability led to overconsumption above levels sustainable by national economies in the rich world. As privately held debt has continued to increase since the GFC, they argue that further debt-financed stimulus cannot possibly deliver a sustainable solution.…”