Ha-Joon Chang: Financial markets need to become less – not more – efficient

In this video Cambridge University’s Ha-Joon Chang argues that financial markets need to become less efficient in order to serve the real economy and fund productive investment, rather than fueling financial asset-price bubbles and speculation.

He also makes the case that society needs more ‘active economic citizens’, who can press politicians and other elites to fashion better economic policies, and more effectively hold them to account.

Michael Hudson on Balance Sheets

JisforJunkEconThe evolution of balance sheets are key to the economics of Hyman Minsky, who described an economy with a financial system as one of ‘interlocking balance sheets’. Similarly, Richard Koo, originator of the concept of a Balance Sheet Recession, has written much on its implications for government deficits during the crisis of 2008 and, before that, during Japan’s Great Recession, which led to two decades of economic stagnation.

Until recently, balance sheets tended to be ignored by the mainstream majority of economists. The revival of Minsky’s ideas, alongside the ideas of Koo and post-Keynesians such as Steve Keen and Wynne Godley, have perhaps begun to shift the tide. The work of Michael Pettis, another economist influenced by Minsky, also deserves to be more widely influential. Continue reading

Minsky on stagflation and the limits to state intervention

MinskyCanItHappenAgainGovernment can be a major force for promoting progressive economic and social development. History tells us that this is rarely sustained indefinitely: the political pendulum swings back and forth, and development proceeds unevenly across space and time.

I was reminded of some of the potential limits to state intervention by the quote below from Hyman Minsky in his collection of essays Can “It” Happen Again? , published in 1982. “It” refers to the Great Depression of the 1930s. His Financial Instability Hypothesis argued that ‘stability is destabilising’: periods of successful economic performance tend to encourage an increasingly risky financial structure, leading eventually to a financial crisis. This outcome could take decades to occur, but it seems that he was proved right by the crisis and recession of 2008-9. Continue reading

Minsky and Kindleberger – an explanation of financial crises

In an often cynical world, standard financial and macroeconomic quantitative models give people the benefit of the doubt. Fundamental economic theory assumes the best of us, supposing that human beings are perfectly rational, know all the facts of a given situation, understand the risks, and optimize our behavior and portfolios accordingly. Reality, of course, […]

via Why Minsky matters — LARS P. SYLL

Inequality, credit and financial crises: establishing a link

Rising inequality of income and wealth has been a much documented trend in the richest countries during the last three decades. Free-market economists have readily embraced this as necessary for improved economic performance, claiming that it improves individual incentives to work, invest and create wealth. The benefits are held to ‘trickle-down’ to all levels of society.

Even if this analysis is correct, there are other economic forces creating more complex chains of causation when it comes to the impact of inequality. Incentives matter, but can be affected by many factors. Continue reading