Living Large: Evolving Consumer Credit Institutions and Privately Induced Transfer Payments

Between 1980 and 2003, real per capita personal income in the United States grew by 59 percent. Meanwhile, real outstanding consumer debt per adult over age fifteen (revolving debt, 2003 dollars) grew from $712 in 1980 to $3,261 in 2003, an increase of 358%. The household debt service burden, measured as the ratio of consumer debt payments to income, rose from 11.5 percent in 1983 to 12.5 percent in 2001. Not surprisingly, the number of nonbusiness bankruptcies rose from 127 to 566 per 100,000 of population in the same period. American consumers continue to fall deeper into debt and often find it difficult to service the debt they have. There are many reasons for the expansion of consumer credit (Watkins 2000) and the increase in bankruptcies. This paper offers an explanation not evident elsewhere in the literature, that evolving consumer credit institutions have created an environment in which individuals can choose to transfer consumption from society to themselves with few consequences and little public scrutiny.