Thinking About Minsky

This article provides a good description of Minsky’s contribution to economics. Minsky could see the historical data and, correctly I believe, concluded that periods of financial stability would lead to period of financial instability. This is his primary contribution to economics. If Minsky was correct, as would seem to be the case, the next question is whether government can do anything to offset the societal impact of instability. Minsky had a theory, Keynes had another theory, but, to date, nothing has been shown to work without serious side effects. For example, unemployment insurance minimizes the impact of job losses but it also prolongs recessions and delays prosperity. Is that a good trade-off or bad? All I know is this: looking at history, the societies which recovered most quickly from “Minsky moments” were those where government did nothing to intervene. The theory of “social safety nets” sounds good in the abstract, but doesn’t do that well in the real world. Good intentions don’t guarantee good results.

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