And finance was growing the whole time

Graph #1: Household Debt as a Percent of Disposable Personal Income  1946-2021

We ("households") owed debt equaling about 20% of Disposable Personal Income (DPI) in 1946. That tripled to 60% by 1962. More than half our household income, by 1962.

The ratio ran flat from the mid-1960s to the early 1980s. Not by coincidence, Allan H. Meltzer puts the start of the so-called "Great Inflation" at 1965, and the end at 1984. Inflation increased DPI so rapidly that it made the ratio run flat all through those years, even though household debt was still going up.

After the Great Inflation, the ratio doubled from around 60% to more than 120%, just in time for the financial crisis. Most people who write about this stuff would say it was our own fault our debt went up. I say it was the fault of policy -- the economic policy that encouraged credit availability, encouraged credit use, discouraged repayment of debt by making interest payments tax-deductible and, according to Scott Sumner, by restricting wage growth.

Since the high point in 2007 the ratio has fallen to just below the 100% level, so that household debt is now about equal to DPI. But it is still way too high. You can tell because our economy still sucks.

If debt was low again, really low, we would have money left over after paying our bills. No one would have to be demanding wage increases or raising prices.