The Political Economy of Household Debt & The Keynesian Policy Paradigm

ABSTRACT Britain is an exemplar of a financialised economy that developed systems of household debt to drive economic growth from the 1980s onwards. The prevailing critical and constructivist accounts consider this development as a key feature distinguishing neoliberalism from Keynesianism. We challenge these prevailing accounts for insufficiently acknowledging the socio-political motivations and consequences of a significant rise in household debt from 1945 under Keynesianism. Synthesising the policy paradigm and Neo-Weberian approaches, we assess the socio-political purposes encoded within the rise in household debt throughout the Keynesian era. Our results demonstrate that household debt was regularly relaxed and restricted by Conservative and Labour governments in line with Keynesian economic ideas. Subsequently, we argue that the deproletarianising and conservatizing effects of household debt shifted voter preferences to the right, which influenced political party policies. The Heath government capitalised on this political shift by liberalising the financial sector and removing state-directed controls on the economy, establishing a distinct break from Keynesian demand management. We argue that the punctuated diffusion and evolution of household debt throughout the Keynesian era laid the social, political and economic foundations for the debt-driven growth model to develop in the 1980s.

[1]  Bank for International Settlements.  Debt , 2015, The Palgrave Encyclopedia of Imperialism and Anti-Imperialism.

[2]  M. Bernhard,et al.  Celebrity and Politics , 2020, Perspectives on Politics.

[3]  B. Fine.  The material and culture of financialisation , 2017, Material Cultures of Financialisation.

[4]  Ben W. Ansell,et al.  Housing and populism , 2020, West European Politics.

[5]  M. Blyth,et al.  From Big Bang to Big Crash: The Early Origins of the UK’s Finance-led Growth Model and the Persistence of Bad Policy Ideas , 2019 .

[6]  Kevin Albertson,et al.  1979 and all that: a 40-year reassessment of Margaret Thatcher’s legacy on her own terms , 2019, Cambridge Journal of Economics.

[7]  M. Sparkes.  Borrowed identities: Class(ification), inequality and the role of credit-debt in class making and struggle , 2019, The Sociological Review.

[8]  Ben W. Ansell,et al.  Brexit and the Politics of Housing in Britain , 2019, The Political Quarterly.

[9]  James D. G. Wood.  Mortgage Credit: Denmark’s Financial Capacity Building Regime , 2018, New Political Economy.

[10]  James D. G. Wood.  The integrating role of private homeownership and mortgage credit in British neoliberalism , 2018 .

[11]  Sean P O'connell,et al.  The Politics of Consumer Credit in the UK, 1938-1992 , 2018 .

[12]  P. Scott,et al.  ‘Stop‐Go’ Policy and the Restriction of Postwar British House‐Building , 2018, The Economic History Review.

[13]  Jeff Powell.  Towards a Marxist Theory of Financialized Capitalism , 2018, The Oxford Handbook of Karl Marx.

[14]  B. Burchell,et al.  Debt: Beyond Homo Economicus , 2018 .

[15]  P. Scott,et al.  The Impact of ‘Stop‐Go’ Demand Management Policy on Britain's Consumer Durables Industries, 1952–65 , 2017 .

[16]  J. Copley.  Financial Deregulation and the Role of Statecraft: Lessons from Britain’s 1971 Competition and Credit Control Measures , 2017 .

[17]  Alan M. Taylor,et al.  Macrofinancial History and the New Business Cycle Facts , 2016, NBER Macroeconomics Annual.

[18]  Martin B. Carstensen,et al.  Of paradigms and power: British economic policy making since Thatcher , 2018 .

[19]  C. Hay.  Process tracing: a laudable aim or a high-tariff methodology? , 2016 .

[20]  Bruno Palier,et al.  Between X and Y: how process tracing contributes to opening the black box of causality , 2016 .

[21]  T. Falleti.  Process tracing of extensive and intensive processes , 2016 .

[22]  Engelbert Stockhammer.  Neoliberal growth models, monetary union and the Euro crisis. A post-Keynesian perspective , 2016 .

[23]  Jeremy Green.  Anglo-American development, the Euromarkets, and the deeper origins of neoliberal deregulation , 2015, Review of International Studies.

[24]  Brett Christophers.  The limits to financialization , 2015 .

[25]  Christopher Kirkland.  Thatcherism and the origins of the 2007 crisis , 2015 .

[26]  L. Stanley.  ‘We're Reaping What We Sowed’: Everyday Crisis Narratives and Acquiescence to the Age of Austerity , 2014 .

[27]  Ben W. Ansell.  The Political Economy of Ownership: Housing Markets and the Welfare State , 2014, American Political Science Review.

[28]  A. Gamble.  Crisis Without End , 2014 .

[29]  N. V. D. Zwan.  Making sense of financialization , 2014 .

[30]  Duncan Needham.  UK Monetary Policy from Devaluation to Thatcher, 1967-82 , 2014 .

[31]  J. Marshall.  A geographical political economy of banking crises: a peripheral region perspective on organisational concentration and spatial centralisation in Britain , 2013 .

[32]  J. Milios,et al.  A Political Economy of Contemporary Capitalism and its Crisis : Demystifying Finance , 2013 .

[33]  Sheri Berman.  Ideational Theorizing in the Social Sciences since “Policy Paradigms, Social Learning, and the State” , 2013 .

[34]  C. Hay,et al.  The Failure of Anglo-liberal Capitalism , 2013 .

[35]  A. Leyshon,et al.  GUEST EDITORS' INTRODUCTION , 2012 .

[36]  M. Francis.  ‘A Crusade to Enfranchise the Many’: Thatcherism and the ‘Property-Owning Democracy’ , 2012 .

[37]  H. Schwartz.  Housing, the Welfare State, and the Global Financial Crisis , 2012 .

[38]  B. Fine.  Neoliberalism in Retrospect? It’s Financialisation, Stupid , 2012 .

[39]  Christopher Payne.  The Consumer, Credit and Neoliberalism: Governing the Modern Economy , 2011 .

[40]  Leonard Seabrooke.  Everyday Politics and Generational Conflicts in the World Economy , 2011 .

[41]  L. Talani.  Globalization, Hegemony and the Future of the City of London , 2011 .

[42]  Martin B. Carstensen.  Paradigm man vs. the bricoleur: bricolage as an alternative vision of agency in ideational change , 2011, European Political Science Review.

[43]  C. Hay.  Pathology Without Crisis? The Strange Demise of the Anglo-Liberal Growth Model 1 , 2011, Government and Opposition.

[44]  M. Kreuzer.  Historical Knowledge and Quantitative Analysis: The Case of the Origins of Proportional Representation , 2010 .

[45]  J. Goldstein.  Introduction: The Political Economy of Financialization , 2009 .

[46]  C. Hay.  Good Inflation, Bad Inflation: The Housing Boom, Economic Growth and the Disaggregation of Inflationary Preferences in the UK and Ireland , 2009 .

[47]  C. Crouch.  Privatised Keynesianism: An Unacknowledged Policy Regime , 2009 .

[48]  Selina Todd.  Affluence, Class and Crown Street: Reinvestigating the Post-War Working Class , 2008 .

[49]  H. Schwartz.  Housing, Global Finance, and American Hegemony: Building Conservative Politics One Brick at a Time , 2008 .

[50]  P. Langley.  Financialization and the Consumer Credit Boom , 2008 .

[51]  Leonard Seabrooke.  The Everyday Social Sources of Economic Crises: From "Great Frustrations" to "Great Revelations" in Interwar Britain , 2007 .

[52]  Mark Blyth,et al.  Exogenous Shocks or Endogenous Constructions? The Meanings of Wars and Crises , 2007 .

[53]  Leonard Seabrooke.  Everyday Legitimacy and International Financial Orders: The Social Sources of Imperialism and Hegemony in Global Finance , 2007 .

[54]  Simon Springer,et al.  A Brief History of Neoliberalism , 2007 .

[55]  G. O’Hara,et al.  Conclusions: Harold Wilson's 1964–70 Governments and the Heritage of ‘New’ Labour , 2006 .

[56]  Leonard Seabrooke.  The Social Sources of Financial Power: Domestic Legitimacy and International Financial Orders , 2006 .

[57]  J. Montgomerie.  Giving Credit where it's Due: Public Policy and Household Debt in the United States, the United Kingdom and Canada , 2006 .

[58]  Randall L. Rose,et al.  Credit Cards as Lifestyle Facilitators , 2005 .

[59]  C. Hay.  The normalizing role of rationalist assumptions in the institutional embedding of neoliberalism , 2004 .

[60]  P. Scott.  The Twilight World of Interwar British Hire Purchase , 2002 .

[61]  Cameron G. Thies.  A pragmatic guide to qualitative historical analysis in the study of international relations , 2002 .

[62]  D. Laidler,et al.  Struggling with the impossible: sterling, the balance of payments and British economic policy, 1949-72 , 2002 .

[63]  J. Froud,et al.  Financialisation and the coupon pool , 2001 .

[64]  E. Green.  Thatcherism: An Historical Perspective , 1999, Transactions of the Royal Historical Society.

[65]  M. Holmes.  The Failure of the Heath Government , 1997 .

[66]  M. Gandhi,et al.  Selected Political Writings , 1996 .

[67]  P. Hall.  Policy paradigms, social learning, and the state: the case of economic policymaking in Britain , 1993 .

[68]  E. Green.  Finance and financiers in European history 1880–1960: The influence of the City over British economic policy, c.1880–1960 , 1991 .

[69]  P. Hall.  The Political Power of Economic Ideas: Keynesianism across Nations , 1989 .

[70]  P. Kingston,et al.  The Politics of Homeownership , 1984 .

[71]  M. Hall.  Monetary policy since 1971 , 1983 .

[72]  W. Runciman.  ‘Embourgeoisement’, Self-Rated Class and Party Preference , 1964 .

[73]  S. Lipset.  The changing class structure and contemporary european politics , 1964 .

[74]  J. Goldthorpe,et al.  Affluence and the British Class Structure , 1963 .

[75]  J. Thornely.  Hire-Purchase Hardships and Hopes , 1962, The Cambridge Law Journal.

[76]  D. Lockwood.  The ‘New Working Class’ , 1960, European Journal of Sociology.