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.