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Stabilizing an Unstable Economy

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Stabilizing an Unstable Economy

McGraw-Hill,

15 Minuten Lesezeit
10 Take-aways
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Was ist drin?

Hyman Minsky’s prescient 1986 study of economic volatility is a modern classic.

Editorial Rating

8

Qualities

  • Innovative

Recommendation

The late professor Hyman P. Minsky wrote this study of economic volatility in 1986, as an era of frequent economic crises was shaking investors’ confidence. His treatise remains relevant today. Minsky doesn’t mention dot-com bubbles or subprime mortgages, yet he manages to nail contemporary economic reality. As the economist who lent his name to “the Minsky Moment,” that point in time when markets tip from prosperity to crisis, he often repeats his concerns about income inequality, seeming to predict the current debate about ever-increasing concentrations of wealth. But in case you consider labeling Minsky as just a tax-and-spend liberal, consider that he frowns on welfare and long-term unemployment benefits. He’s no master stylist as a writer, but Minsky’s prose is generally clear enough to reward readers who seek his insight. getAbstract recommends this classic analysis to readers seeking a skeptical perspective on free markets.

Summary

Two Decades of Calm and then, the Storms

In a capitalist economy, bubbles, booms and busts should come as no surprise. Euphoric highs and wrenching lows often shock investors and policy makers, even though such instability is an innate part of capitalism. The 20-year period of stability and prosperity after World War II heavily influenced emerging economic thought by creating optimistic expectations. This tranquil time was the backdrop for the development of a “highly mathematical theory” of economics that downplays the vagaries of risk and uncertainty and the ebbs and flows of financing and investment. The era of stability ended with the credit crunch of 1966, and more financial crises followed in 1970, 1974-75, 1979-80 and 1982-83, each deeper than the last.

Many economists saw these busts as a repudiation of the macroeconomic theories of John Maynard Keynes and as an affirmation of classical microeconomic thinking. This conclusion is incorrect. To understand today’s economy, start with two assumptions: First, free markets offer the most effective way to meet basic economic needs; second, sophisticated financial institutions and massive capital flows, by their ...

About the Author

Hyman P. Minsky, a student of noted economists Joseph Schumpeter and Wassily Leontief, was a professor of economics at Brown University, Harvard University and the University of California, Berkeley. He died in 1996.

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