Private Debt and the Anglo-Liberal Growth Model

Abstract

Was there really a debt-fuelled ‘liberal growth model’ that preceded the 2008 financial crisis? The accepted narrative about the pre-crisis boom is that some liberal countries relied on domestic consumption to fuel economic growth, and on household debt to fuel this consumption. In this, they contrasted with coordinated economies. While eventually unsustainable, the growth strategy was politically necessary to maintain middle-class living standards in the context of increasing income inequality. In this article, I take these contentions to the data. Economic evidence from 1995–2007 and political data from the Comparative Manifesto Project Database undermine this received wisdom: while household debt increased in the liberal countries, it does not differentiate this particular growth model. Further, there is no evidence that politicians in liberal countries advocate different economic policies, including those concerning borrowing, to claim credit and stay in power. Differences in the importance of finance between countries, however, suggest a more elite-driven divergence.