The Levy Institute is officially non-partisan, but tends to publish in the spirit of post-Keynesian thinking. The late Hyman Minksy and Wynne Godley spent the latter part of their lives working there and Godley helped build their macroeconomic model of the US economy.
This year, the 14-page report is titled Can Redistribution Help Build a More Stable Economy? In short, the authors examine what they see as the four key constraints on the US economy and which account for the historically lengthy but weak recovery: (1) weak net export demand; (2) fiscal conservatism; (3) increasing income inequality; and (4) financial fragility. These four constraints help to explain the weak performance, as well as some of the political developments of recent years. Continue reading →
Post-Keynesian economist Steve Keen, of Debunking Economics fame, discusses in the video below his criticisms of mainstream economic thinking and his work constructing a model based on the work of Hyman Minsky, which necessarily incorporates money and finance.
The model can produce periods of economic stability with rising inequality, followed by instability and recession as possible outcomes. These patterns fit very well the experience of many rich countries during the last few decades.
He also touches on the dialectical thinking of Hegel and Marx, which he studied during his early career.
Keen was one of the heterodox or non-mainstream economists to use a mathematical model to predict a major economic crisis a number of years before the Great Recession of 2008 occurred, by modeling Minsky’s ‘financial instability hypothesis’.
Plenty of economists are critical of the apparent irrationality of financial bubbles, which have occurred throughout the history of capitalism. That they recur despite the efforts of governments to regulate the markets and prevent their worst excesses suggests that, at least to some degree, they are inevitable.
Alan Greenspan, former chair of the Federal Reserve, famously termed the dot-com bubble in the 1990s a bout of “irrational exuberance”.
In an interesting and iconoclastic piece written back in 2004, John Eatwell of Cambridge University considered the possibility of what he termed “useful bubbles”. In his own words, he was attempting to “row against [a] powerful tide of condemnation”, but was defining “useful in a very limited way – that is, as producing some positive consequences”, despite the potential for panics and crashes. Continue reading →
A nice interview with post-Keynesian Professor Steve Keen, in which he discusses what are (or should be) some of the most important issues in modern economics.
He covers the role of finance and private debt in generating inequality and what can be done to reduce it; the idea and feasibility of a universal basic income; economics and planetary ecology; and the incorporation of energy into economic models.
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.
The 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 →
Government 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 →