Why Minsky Matters
An Introduction to the Work of a Maverick Economist
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Perhaps no economist was more vindicated by the global financial crisis than Hyman P. Minsky (1919-96). Although a handful of conomists raised alarms as early as 2000, Minsky's warnings began a half-century earlier, with writings that set out a compelling theory of financial instability. Yet even today he remains largely outside mainstream economics: few people have a good grasp of his writings, and fewer still understand their full importance. Why Minsky Matters makes the makes the maverick economist's critically valuable insights accessible to general readers for the first time. L. Randall Wray shows that by understanding Minsky we will not only see the next crisis coming but we might be able to act quickly enough to prevent it. As Wray explains, Minsky's most important idea is that "stability is destabilizing": to the degree that the economy achieves what looks to be robust and stable growth, it is setting up the conditions in which a crash becomes ever more likely. Before the financial crisis, mainstream economists pointed to much evidence that the economy was more stable, but their predictions were completely wrong because they disregarded Minsky's insight. Wray also introduces Minsky's significant work on money and banking, poverty and unemployment, and the evolution of capitalism, as well as his proposals for reforming the financial system and promoting economic stability. A much-needed introduction to an economist whose ideas are more relevant than ever, Why Minsky Matters is essential reading for anyone who wants to understand why economic crises are becoming more frequent and severe - and what we can do about it. -- from dust jacket.
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Good read by the Levy Economics Institute's L. Randall Wray on Hyman Minsky's life's work, and a great primer to Minsky's theorizing on the investment cycle – his financial instability hypothesis – which traces instability in an economy to private sector debt accumulation progressing through degrees of safety margins (ranging from hedge to speculative to Ponzi positions), everyone thinks asset prices will continue to soar and optimism wins the day...until the bubble bursts.
Equally fascinating is his “longue durée” theorizing of capitalism's stages, from commercial capitalism in the 19th century with commercial banks primarily financing production and lending to firms to accomplish such, to the finance capitalism described by Rudolf Hilferding (Minister of Finance in the Weimar Republic; you might recognize Hilferding's work which V.I. Lenin cites in “Imperialism: The Highest Stage of Capitalism”) and the domination of investment banks in financing high-risk speculative activities leading to the Great Depression, followed by managerial-welfare state capitalism with considerable more interventionist measures by the Federal Reserve and Treasury Dept. post-New Deal reforms, culminating where we are at now, money manager capitalism with the rise of shadow banking, non-bank actors that essentially serve banking functions but are not subject to the same regulations chartered banking institutions are (e.g. sovereign wealth funds, hedge funds, corporate treasuries) that played a significant role in Great Recession a decade ago.
And beyond that: a good primer to an economic framework that doesn't casually dismiss tangible analysis of institutions (private sector finance and banking, Federal Reserve and U.S. Treasury operations) and money, all of which critical to understanding how the contemporary capitalist system is mechanically constructed and operates in function – one critical mistake of many of the economics orthodoxy that causes it to be so blind to the state of what's really going on.
