Business Intelligence

Consumer Debt Is 130% Of Income: Avoiding Budget Constraint Orthodoxy

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Executive Summary

Consumer theory maximizes utility subject to a budget constraint, ignoring that the ratio of consumer debt to disposable income has varied between 30% and 130%. Granger-causality tests also confirm Consumption-precedence over income. The author discusses features of newer US data allowing families greater control on the timing and level of income. The 'target-seeking' Wiener-Hopf-Whittle optimization yields a two-equation system where both consumption and income are endogenous, similar to quantities and prices in a demand system.

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