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Debt-Financed Consumption Sprees: Regulation, Freedom and Habits of Thought

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  • Martha Starr

Abstract

Debt-financed consumption sprees can be socially costly. Easy access to credit can push economic activity above sustainable levels, eventually requiring cutbacks in spending, lay-offs from over-grown sectors, and write-downs of bad debts. This paper investigates problems of over-borrowing, emphasizing two key insights from institutional economics. First, tendencies toward over-borrowing have roots in consumers' predispositions to conform to rising consumption norms. Second, following Commons, regulation should be confined to bona fide public problems not better solved via private means. These insights imply that reregulation of consumer-credit markets by itself is not the right way to tackle problems of debt-financed consumption sprees.

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  • Martha Starr, 2010. "Debt-Financed Consumption Sprees: Regulation, Freedom and Habits of Thought," Journal of Economic Issues, Taylor & Francis Journals, vol. 44(2), pages 459-470.
  • Handle: RePEc:mes:jeciss:v:44:y:2010:i:2:p:459-470 DOI: 10.2753/JEI0021-3624440218
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