P 31 what evidence do reich and rajan provide for

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Unformatted text preview: g more slowly? Idea #3 StagnaEng incomes of the non ­rich and rising inequality lead to unsustainable credit expansion. Two Versions of Idea #3 •  Reich: Pressure to maintain standards of living and keep up with the wealthy leads the non ­rich to take on excessive debt. (“Middle ­class consumers took on the huge amount of debt as a last resort … [to] keep consuming as if wages hadn’t stalled.” [p. 64]) •  Rajan: PoliEcians take steps to make easy credit available to the non ­rich so that their consumpEon conEnues to rise. (“PoliEcians have … looked for other ways [than educaEon and redistribuEve taxaEon] to improve the lives of their voters. Since the early 1980s, the most seducEve answer has been easier credit.” [p. 31]) What Evidence Do Reich and Rajan Provide for Their Idea? •  Broad paverns in the data: saving fell sharply, credit grew rapidly. •  Policymakers adopted policies to promote homeownership and mortgage lending to broad parts of the populaEon. •  The housing boom was largest in lower ­income areas. What Other Evidence Could You Get about Reich’s and Rajan’s Idea?...
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