Line of Inquiry: Amir Sufi on Inequality’s Effect on Credit Availability

What precipitates the credit-supply booms that make it easier for consumers, homeowners, and others to borrow—and, in some cases, drive up household debt to unsustainable levels? In the second part of a two-part series, Chicago Booth's Amir Sufi explains that inequality may be an important factor: as the wealthy look for productive uses for their increasingly large share of the pie, they turn to the financial sector, which uses those funds to issue loans. For an explanation of how credit-supply expansions may help fuel the boom-bust cycle that sometimes leads to economic catastrophe, see part one of this series.