A Feast in Time of Plague: Debt-Financed Spending Spree during the Pandemic

Abstract

AbstractThe paper explores the nexus between household consumption, financialization, and socio-economic policy. We focus on the recent episode of debt-financed buying of passenger cars which took place in Russia in 2020–21, amidst the Covid pandemic. We collect statistics on car sales, car loans and household income, and construct metrics to gauge leveraged car buying. The latter is found to be relatively inelastic to the price of a car and personal income. Two specific factors are highlighted: (a) speculation, alias hedging, to which households resort under financial instability; and (b) government policy aiming to facilitate household access to car loans. Conceived as a palliative against the pain of economic downturn, loan availability might instead bolster speculative demand and inflate price bubbles. The paper contributes to the body of literature on the sociology of consumption, household financialization, and the political economy of lending.KEYWORDS: : Sociology of consumptionfinancializationhousehold debtspeculative demandgovernment policyJEL codes: : B52B55E21G51 AcknowledgementsWe thank Anton Pyzhev, Paolo Ramazzotti, Akos Rona-Tas, an anonymous referee, and the participants of conferences held by Southern Federal University in Rostov-na-Donu, Institute of Economics UB RAS in Ekaterinburg, Society for the Advancement of Socio-Economics in Amsterdam, and European Association for Evolutionary Political Economy in Naples. We are grateful to Timothy M. Spence for the language editing.Disclosure statementNo potential conflict of interest was reported by the author(s).Notes1 Financial Conduct Authority (2014). Consumer credit and consumers in vulnerable circumstances. April. https://www.fca.org.uk/publication/research/consumer-credit-customers-vulnerable-circumstances.pdf2 In monetary terms; based on a sample of banks with the largest car loan portfolio, as reported by CBR for 2013–21. Data by Banki.ru, own computation.3 http://www.fingeo.net/2022-04-05-rachel-n-weber-financial-astrology-real-estate-speculation-during-a-pandemic/?utm_source=rss&utm_medium=rss&utm_campaign=2022-04-05-rachel-n-weber-financial-astrology-real-estate-speculation-during-a-pandemic4 Harvey Leibenstein explained the notion of speculative demand as “the fact that people will often ‘lay in’ a supply of a commodity because they expect its price to rise” (Leibenstein, Citation1950, p.189). Hyman Minsky referred to speculative finance to describe a firm’s borrowings to refinance existing debts. Such a regime provokes an increase in asset prices (Minsky, Citation2008).5 Friedrich Hayek used the term malinvestment to define the process of entrepreneurial calculation, when, at a reduced interest rate, previously unprofitable projects appear profitable to entrepreneurs (Hayek, Citation1939).6 Demoscope survey of 12,650 respondents (6,000 households) within the framework of the project “Research of Financial Behavior and Savings Habits of the Population of the Russian Federation”, 2013–18, to promote financial literacy and financial education of the Russian population by the Ministry of Finance (Russia) together with the IBRD. https://conf.hse.ru/2019/news/259706895.html7 Data by Banki.ru (https://www.banki.ru/news/research/?id=10951986), own computation.Additional informationFundingThis research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.