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Deceased in 1996, Hyman Minsky was an economist who was barely known at all during his lifetime. Only certain enlightened minds \u2013 unorthodox ones, of course \u2013 were interested in his research which focused on the causes of financial crises. He owed his hour of glory to the subprime implosion in 2007 and it\u2019s as if the whole \u2013 totally flummoxed \u2013 worlds of finance, economics and politics only then found out about his work. All of a sudden, central bankers couldn\u2019t stop citing him in their speeches, and the media couldn’t stop calling the crisis a \u201cMinsky moment\u201d. Never mentioned \u2013 not even briefly \u2013 by the press during his lifetime, The Economist, however, cited him more than 30 times just in 2007!<\/p>\n
In truth, Minsky\u2019s approach was in no way conventional since in his works he avoided using mathematics, almighty in economic science, as much as possible. Moreover, the fundamental objective of his research \u2013 the deep-seated roots of crises \u2013 was highly unpopular at a time when the dominant ideology of the 20th century consisted of a blind faith in the efficiency and rationality of markets. His unpopularity \u2013 or rather his total absence from the picture \u2013 came from his stock in trade \u2013 the study of crises \u2013 at a time when nearly all actors from all sectors considered financial markets to be the supreme arbitrator. With modern, so-called \u201cintegrated\u201d economies meant to have vanquished the most cunning of their demons, any crisis could by definition only be short-lived and have only a limited impact on the economy.<\/p>\n
It is in this economic climate, fashioned by an almost complete denial of the harm that markets can do, that Minsky developed his hypothesis on financial instability and showed that economic torments are caused precisely by long periods of prosperity. He described situations where private individuals and companies would frantically jump at the chance to borrow without even having the liquidities needed to afford the sole interest of their debts, justified simply by the speculation that their assets would appreciate without interruption. Such a phenomenon of collective contamination obviously makes the financial system extremely weak when a tightening of rates, a generally insignificant incident, or even a tiny snowflake can weigh in on the valuation of these same assets, thus provoking an avalanche of forced sales. These investors\u2019 overexposure, as they make the most of their gigantic leverage in the hope that their valuations will only soar, is exacerbating a whole system that no longer owes \u2013 for a time \u2013 its prosperity only to debt.<\/p>\n
It\u2019s easy to understand why Minsky was a black sheep during his lifetime because his conclusions are very worrying. Economic stability brings with it the germs of instability, since periods of great fragility are only an echo of periods of prosperity. So, why not forever keep on borrowing more when growth seems unsinkable? In such an economic climate, isn’t the temptation for banks to be less cautious when granting credit too great? Minsky\u2019s works on the harmful effects of debt \u2013 although essential to understanding the processes of economic prosperity \u2013 were nevertheless widely ignored, only to conveniently reappear during the major crisis of 2007 and 2008. Now, in 2017, we are again seeing the rush to borrow in an environment of generally relaxed regulation. As a result, Minsky\u2019s shadow is fading…until the next eruption.<\/p>\n","protected":false},"excerpt":{"rendered":"
Deceased in 1996, Hyman Minsky was an economist who was barely known at all during his lifetime. Only certain enlightened minds \u2013 unorthodox ones, of course \u2013 were interested in his research which focused on the causes of financial crises. He owed his hour of glory to the subprime implosion in 2007 and it\u2019s as…<\/p>\n","protected":false},"author":4,"featured_media":13768,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"give_campaign_id":0,"_crdt_document":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"mc4wp_mailchimp_campaign":[],"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false},"categories":[648941299,648941308,648941294],"tags":[],"class_list":["post-13767","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bubble","category-minsky","category-neoliberalism"],"yoast_head":"\n