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A Random Walk Down Maple Lane? A Critique of Neoclassical Consumption Theory with Reference to Housing Wealth

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Greg Hannsgen

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Abstract

The development of the permanent income/life cycle consumption hypothesis was a key blow to Keynesian and Kaleckian economics, and, according to George Akerlof, it 'set the agenda' for modern neoclassical macroeconomics. This paper focuses on the relationship of housing wealth to neoclassical consumption theory and, in particular, the degree to which homes can be treated collectively with other forms of 'permanent income.' The neoclassical analysis will be evaluated as a partly normative and partly positive one, in recognition of the dual function of the neoclassical theory of rationality. The paper rests its critique primarily on the distinctive role of homes in social life; theories that fail to recognize this role jeopardize the social and economic goods at stake. Since many families do not own large amounts of assets other than their places of residence, these issues have important ramifications for the relevance of consumption theory as a whole.

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Article provided by Taylor and Francis Journals in its journal Review of Political Economy.

Volume (Year): 19 (2007)
Issue (Month): 1 ()
Pages: 1-20
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Handle: RePEc:taf:revpoe:v:19:y:2007:i:1:p:1-20

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  2. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Oxford University Press, vol. 26(4), pages 609-43, October.
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  4. Elliott, J Walter, 1980. "Wealth and Wealth Proxies in a Permanent Income Model," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 509-35, November. [Downloadable!] (restricted)
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  8. Kosuke Aoki & James Proudman & Gertjan Vlieghe, 2002. "Houses as collateral: has the link between house prices and consumption in the U.K. changed?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 163-177. [Downloadable!]
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  10. Dimitri B. Papadimitriou & Edward Chilcote & Gennaro Zezza, 2006. "Are Housing Prices, Household Debt, and Growth Sustainable?," Economics Strategic Analysis Archive sa_jan_06, Levy Economics Institute, The. [Downloadable!]
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  15. Bayoumi, Tamim A, 1993. "Financial Deregulation and Consumption in the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 536-39, August. [Downloadable!] (restricted)
  16. L. Randall Wray, 2005. "The Ownership Society: Social Security Is Only the Beginning . . ," Economics Public Policy Brief Archive ppb_82, Levy Economics Institute, The. [Downloadable!]
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  18. Greg Hannsgen, 2004. "Borrowing Alone The Theory and Policy Implications of the Commodification of Finance," Finance 0402011, EconWPA. [Downloadable!]
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