On debt-fueled consumption, rising inequality, education, and service sector pay

Raghuram Rajan, the former IMF economist who was one of the first to finger banks' pay structure as a key cause of the financial crisis,(in Jan. '08)  has an  interesting essay out: How Inequality Fueled theCrisis (h/t Chait).  In developed countries, only the educated can thrive in a global economy. Delivering effective, broad-based education reform is hard and slow; encouraging debt-fueled consumption is a readily available palliative. So politicians of both parties have turned to the latter:

In the US, though, there have been strong political forces arrayed against direct redistribution in recent years. Directed housing credit was a policy with broader support, because each side thought that it would benefit.

The left favored flows to their natural constituency, while the right welcomed new property owners who could, perhaps, be convinced to switch party allegiance. More low-income housing credit has been one of the few issues on which President Bill Clinton's administration, with its affordable-housing mandate, and that of President George W. Bush, with itspush for an "ownership" society, agreed.