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Financially Unstable Households

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  • Robert H. Scott
  • Steven Pressman

Abstract

One of Hyman Minsky’s most important contributions is the Financial Instability Hypothesis (FIH), which explains why capitalist economies experience periods of optimism (booms) and pessimism (bust). At the beginning of a cycle, businesses take on more debt, but they are conservative, and the principal is easily paid back (a hedge position). As optimism grows, so does risk-taking and businesses take on more debt. At some point they can only afford to pay interest on that debt (speculative position). In the most extreme case, businesses take on so much debt that they can neither pay the principal nor make interest payments (Ponzi position). Minsky wrote about financial instability (e.g., 1975, 1982) before U.S. households had taken on large levels of debt. Minsky focused on businesses since they were the debt drivers. Today household debt is at record levels, so it makes sense to understand how financially unstable U.S. households are and what this means for the economy. We begin the article by arguing that Minsky’s categories should be applied to households; then we operationalize them using the Federal Reserve’s Survey of Consumer Finances. This enables us to measure changes in household financial instability using a Minsky-inspired framework and draw some conclusions.

Suggested Citation

  • Robert H. Scott & Steven Pressman, 2019. "Financially Unstable Households," Journal of Economic Issues, Taylor & Francis Journals, vol. 53(2), pages 523-531, April.
    • Handle: RePEc:mes:jeciss:v:53:y:2019:i:2:p:523-531
    DOI: 10.1080/00213624.2019.1603765
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    Cited by:

    1. Stefano Di Bucchianico, 2020. "A note on financialization from a Classical-Keynesian standpoint," Department of Economics University of Siena 824, Department of Economics, University of Siena.
    2. Juan Ignacio Martín-Legendre & José Manuel Sánchez-Santos, 2024. "Household debt and financial vulnerability: empirical evidence for Spain, 2002–2020," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(3), pages 703-730, August.
    3. Yunchao, Cai & Abdullah Yusof, Selamah & Mohd Amin, Ruzita & Mohd Arshad, Mohd Nahar, 2020. "Household Debt and Household Spending Behavior: Evidence from Malaysia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(1), pages 111-120.
    4. Charles J. Whalen, 2020. "Post-Keynesian institutionalism: past, present, and future," Evolutionary and Institutional Economics Review, Springer, vol. 17(1), pages 71-92, January.

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