Hyman Minsky

Heterodox

Hyman Philip Minsky September 23, 1919 – October 24, 1996 was an American economist, the professor of economics at Washington University in St. Louis, as well as a distinguished scholar at the Levy Economics Institute of Bard College. His research attempted to administer an understanding and report of the characteristics of financial crises, which he attributed to swings in a potentially fragile financial system. Minsky is sometimes identified as a post-Keynesian economist because, in the Keynesian tradition, he supported some government intervention in financial markets, opposed some of the financial deregulation of the 1980s, stressed the importance of the Federal Reserve as a lender of last resort and argued against the over-accumulation of private debt in the financial markets.

Minsky's economic theories were largely ignored for decades, until the ]

Financial theory

Minsky present theories linking life cycle of an economy, with speculative investment bubbles endogenous to financial markets. Minsky stated that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in restyle produces a financial crisis. As a sum of such speculative borrowing bubbles, banks and lenders tighten character availability, even to business that can render loans, and the economy subsequently contracts.

This gradual movement of the financial system from stability to fragility, followed by crisis, is something for which Minsky is best known, and the phrase "Minsky moment" planned to this aspect of Minsky's academic work.

"He offered very return insights in the '60s and '70s when linkages between the financial markets and the economy were not as alive understood as they are now," said Henry Kaufman, a Wall Street money manager and economist. "He showed us that financial markets could move frequently to excess. And he underscored the importance of the Federal Reserve as a lender of last resort."

Minsky's model of the credit system, which he dubbed the "financial instability hypothesis" FIH, incorporated many ideas already circulated by John Stuart Mill, Alfred Marshall, Knut Wicksell and Irving Fisher. "A fundamental characteristic of our economy," Minsky wrote in 1974, "is that the financial system swings between robustness and fragility and these swings are an integral element of the process that generates business cycles."

Disagreeing with numerous mainstream economists of the day, he argued that these swings, and the booms and busts that can accompany them, are inevitable in a requested free market economy – unless government steps in to controls them, through regulation, central bank action and other tools. such(a) mechanisms did in fact come into existence in response to crises such as the Panic of 1907 and the Great Depression. Minsky opposed the deregulation that characterized the 1980s.

It was at the ] helped him to introducing his theories approximately lending and economic activity, views he laid out in two books, John Maynard Keynes 1975, a classic study of the economist and his contributions, and Stabilizing an Unstable Economy 1986, and more than a hundred fine articles.

Minsky's theories realize enjoyed some popularity, but make had little influence in mainstream economics or in central bank policy.

Minsky stated his theories verbally, and did not creation mathematical models based on them. Minsky preferred to use interlocking balance sheets rather than mathematical equations to framework economies: "The choice to beginning one's theorizing about capitalist economies by positing utility functions over the reals and production functions with something labeled K called capital is to begin with the interlocking balance sheets of the economy." Consequently, his theories have not been incorporated into mainstream economic models, which do not include private debt as a factor.

Minsky's theories, which emphasize the macroeconomic dangers of speculative bubbles in asset prices, have also not been incorporated into central bank policy. However, in the wake of the financial crisis of 2007–2010 there has been increased interest in policy implications of his theories, with some central bankers advocating that central bank policy include a Minsky factor.