seen in a positive light if it exceeds that of the reference group ; if, instead, the increase in income is less than that of the reference group, it bini smaghi, l. ( 2008 ), “ la ue non segua l ’ esempio usa ”, corriere della sera, 3 october 2008. is perceived as being an absolute loss, even if it is only relative. one consequence of these tendencies, borne out in a number of experiments, is that individuals may even be prepared to renounce additional income, just to have a more equitable distribution of wealth within the community, particularly when this is to their advantage. zizzo and oswald, 3 researchers at the universities of oxford and warwick respectively, outline the results of an experiment in which the participants can pay out of their own pocket to “ burn ” money belonging to the other members of the group. the majority of subjects choose to do so, even if this reduces their own income. on average, it is the richest subjects who are most affected. this line of research suggests that inequalities create tensions within given social groups and lead to backlashes. these results are consistent with recent studies which attempt to account for the “ happiness ” of individuals in terms of a series of parameters, including income. in this context, the easterlin paradox is well - known. 4 it suggests that when individuals see an increase in their income, their level of satisfaction does not necessarily rise if the increase is very unequal. this literature offers an explanation of the behaviour recently observed in our societies, namely the opposition to helping the crisis - hit financial system, because it is perceived as being richer and well - off. on the contrary, there is greater readiness to help other sectors of the economy, such as agriculture or the automotive industry, even though these sectors have a smaller direct impact on people ’ s well - being. this is probably because these sectors are perceived as being less well - off and faced with difficulties arising from exogenous factors rather than recklessness, unlike the financial sector. it is interesting to note that such attitudes opposed to inequality have also emerged recently in the united states, where income disparities have tended to meet with greater acceptance than in europe, as shown in studies by alesina, di tella and macculloch. 5 one possible explanation is that the mechanisms of upward mobility in american society, which in the past made inequality more acceptable, have ground to a halt

indebtedness is justified on the basis of improved household balance sheets, my concern relates to the socio - economic impact of excessive debt accumulation. as more and more people find employment or better paid employment, the temptation is to rush out and buy a bigger car and a bigger house. very soon, we see people becoming overextended and repossessions become commonplace. part of this development is due to excessive exuberance on the part of consumers. there is not a culture of saving in south africa, as demonstrated by our very low savings rate, and people are happy to borrow excessively against future income in order to finance current consumption. the problem has also been compounded on the supply side with banks and others, including retailers, falling over themselves to extend credit, resulting in a number of questionable lending practices. perhaps the situation is not as bad as in other countries such as australia, where it was reported a few months back that a woman successfully applied for a credit card for her cat. but some of the stories we have heard locally are not much better. fortunately some sanity appears to be returning to the market with the recent adoption by the banks of a voluntary code of good conduct with respect to the marketing of credit. at the same time, further constraints on lending have become evident with the introduction of the national credit act in june, when stricter requirements were imposed on lenders to determine the creditworthiness of borrowers. although this may have a dampening affect on certain categories of credit extension and introduce more careful risk assessment, we do not believe that this will replace the need for monetary policy restraint. 6. economic growth and inflation excessively high economic growth brings with it potential inflationary pressures to which monetary policy has to be sensitive. in each of the past three years, the economy has been growing at a rate of 5 per cent, which is high compared to our experience of the past 25 years or so. capacity utilisation in the manufacturing sector has also reached record high levels. while we in the bank are pleased by this strong growth performance, we have to ensure that this growth does not affect inflation adversely. in economic terminology this refers to the concept of potential output, which at a simplified level is the rate at which the economy can grow without generating inflationary pressures. from a monetary policy perspective we have to consider whether our current growth experience is inflationary. in other words, are we growing in excess of our potential output? unfortunately, estimating potential