These behaviors are individually rational responses to inflation, but collectively they make it worse. That is because inflation is not just a matter of how much money is in circulation, but also of how fast it is circulating. When money is losing its value fast, everyone wants to get rid of it. This makes it circulate faster, which, in turn, raises the inflation rate. Living beyond one's means is a rational response to inflation, but also a cause of it.
I understand that. Here is what I don't understand. The 1970's were a time of exceptionally high inflation, peaking at 13%. 1980 can be considered the very height of the inflation, right before Paul Volcker tightened the belt and broke the inflationary spiral. There were dark mutterings at the time about the need to live within our means. Inflation has been modest ever since. Yet a funny thing happened between then and now.
Here is a graph of our inflation rate, confirming that it spiked in the 1970's and has been modest ever since.
Here is a graph of personal consumption as a percentage of GDP. It clearly shows that consumption as a share of our economy remained generally steady thoughout the highest inflation years and began steadily rising after inflation was brought under control.
Here is a graph of our total debt as a pecentage of GDP, showing that it rose modestly during the inflationary years and then exploded afterward. Of course, it was also at this time that our government abandoned all fiscal prudence, so government debt is no doubt reflected as part of this table.
Here is a table of household debt as a percentage of GDP. Once again, it expands only modestly during the inflationary years and makes its explosive growth only afterward. Granted, once may say, that debt stayed unnder control because inflation was continually eroding it; that is, after all why people lose their fear of debt during high inflation.
Here, then, is the changest graph of all. People are supposed to give up saving during high inflation because asavings continually lose their value and therefore become pointless. Yet savings held up remarkably will thoughout the 1970's and only began to decline after inflation was tamed (eventually going negative by 2005). In short, during the 1970's, we saw double digit inflation and very little inflationary behavior. Since then, inflation has been modest, but inflationary behavior has gotten worse and worse. The runup in debt may be attributed to ever easier credit, but why the ever increasing consumption? Why the ever falling savings? Why did we engage in more and more classic inflationary behavio the further inflation receded into memory?