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The Seven Debtly Sins: An Institutionalist Explanation of Why Consumer Debt Levels are So High

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  • Robert Scott
  • Steven Pressman

Abstract

Consumer debt has risen dramatically in the United States since the early 1980s. Household debt-to-disposable income rose from around 65% in 1980 to 135% in 2022. As we have shown previously, rising debt levels mean that the problem of income inequality is worse than currently thought, and the living standards of Americans are lower than measured. In The Affluent Society, John Kenneth Galbraith builds on Thorstein Veblen’s work, The Theory of the Leisure Class, arguing that emulation and persuasion lead not only to more debt but also to an eventual crash and, thus, to greater economic volatility. Excessive debt also makes it harder for people to save for retirement, emergencies, and their children’s education, and it exerts a drag on consumer spending overall and economic growth since money used to repay past debt (and the interest on that debt) cannot be used to purchase new goods and services. The article concludes with some institutionalist policy solutions to improve the issuance, repayment, and discharging of household debt in ways that will dampen the destabilization of household finances and the macroeconomy.

Suggested Citation

  • Robert Scott & Steven Pressman, 2025. "The Seven Debtly Sins: An Institutionalist Explanation of Why Consumer Debt Levels are So High," Journal of Economic Issues, Taylor & Francis Journals, vol. 59(1), pages 124-139, January.
    • Handle: RePEc:mes:jeciss:v:59:y:2025:i:1:p:124-139
    DOI: 10.1080/00213624.2025.2455662
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