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