Stabilizing an Unstable Economy (Hardcover)

by Hyman Minsky (Author)
Key Phrases: technologically determined costs, neoclassical aggregate theory, gross internal funds, Federal Reserve, Big Government, New York (more...)

Editorial Reviews

Product Description

“Mr. Minsky long argued markets were crisis prone. His 'moment' has arrived.” -The Wall Street Journal

In his seminal work, Minsky presents his groundbreaking financial theory of investment, one that is startlingly relevant today. He explains why the American economy has experienced periods of debilitating inflation, rising unemployment, and marked slowdowns-and why the economy is now undergoing a credit crisis that he foresaw. Stabilizing an Unstable Economy covers:

• The natural inclination of complex, capitalist economies toward instability
• Booms and busts as unavoidable results of high-risk lending practices
• “Speculative finance” and its effect on investment and asset prices
• Government's role in bolstering consumption during times of high unemployment
• The need to increase Federal Reserve oversight of banks

Henry Kaufman, president, Henry Kaufman & Company, Inc., places Minsky's prescient ideas in the context of today's financial markets and institutions in a fascinating new preface. Two of Minsky's colleagues, Dimitri B. Papadimitriou, Ph.D. and president, The Levy Economics Institute of Bard College, and L. Randall Wray, Ph.D. and a senior scholar at the Institute, also weigh in on Minsky's present relevance in today's economic scene in a new introduction.

A surge of interest in and respect for Hyman Minsky's ideas pervades Wall Street, as top economic thinkers and financial writers have started using the phrase “Minsky moment” to describe America's turbulent economy. There has never been a more appropriate time to read this classic of economic theory.

From the Back Cover

Praise for the prescient work of Hyman P. Minsky

“Twenty-five years ago, when most economists were extolling the virtues of financial deregulation and innovation, a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze.”
--John Cassidy, The New Yorker

“The journey from subprime mortgages to a major credit crisis, a weak economy and broken business models in finance could all have been foreseen through Hyman Minsky’s perspectives. His work remains essential to understanding the ground beneath us and the path ahead.”
—-George Magnus, Senior Economic Adviser, UBS Investment Bank

“It is time to revive an old issue: Just how inherently unstable are economies? But instead of getting much guidance these days from contemporary economists, we need to turn to some of the giants from the past. The work of Hyman Minsky . . . is especially on the mark.”
--Jeff Madrick, The New York Times

“Hyman Minsky's work has never been more valuable. His financial instability hypothesis, complete with hedge, speculative and ponzi units, has played out to a T in the U.S. property and mortgage markets over the last half decade.”
--Paul McCulley, Managing Director, PIMCO

“As it happens, Minsky is enjoying something of a revival. Two of his books, John Maynard Keynes, and Stabilizing an Unstable Economy were just republished by McGraw-Hill, and his contention that stability is inherently unstable seems more relevant than ever in the aftermath of the period of low market volatility that ended in the current crisis.

"In the latter of those books, published in 1986, Minsky wrote, 'If the institutions responsible for the lender-of-last resort function stand aside and allow market forces to operate, then the decline in asset values relative to current output prices will be larger than with intervention; investment and debt financed consumption will fall by larger amounts; and the decline in income, employment and profits will be greater.' In other words, without government bailouts, there can be a downward spiral.”
--The New York Times

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Product Details

• Hardcover: 350 pages
• Publisher: McGraw-Hill; 1 edition (April 14, 2008)
• Language: English
• ISBN-10: 0071592997
• ISBN-13: 978-0071592994
• Product Dimensions: 9.1 x 6.2 x 1.4 inches
• Shipping Weight: 1.7 pounds (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars See all reviews (4 customer reviews)
• Amazon.com Sales Rank: #14,739 in Books (See Bestsellers in Books)

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Customer Reviews

Most Helpful Customer Reviews

6 of 6 people found the following review helpful:

5.0 out of 5 stars THE book to read on the current crisis, April 10, 2009

By	Richard Gibson "Rick Gibson" (Woodland Hills, CA) - See all my reviews

I have been trying to understand the roots of the current financial crisis. I have found a number of fairly good journalistic descriptions of the particulars of this crisis. What I have found lacking, by and large, is any book of economic theory, which explains what just happened and why.

One of the few good books, with more of an academic foundation is Kindleberger's book, Manias, Panics and Crashes. That is the classic book on the business cycle. In the end, however, Kindleberger basically just describes the cycle; he does not really give a good theory of it.

Kindleberger, however, referred me to Minsky. Minksy's book is not recent. It was written back in the 1980s. Despite its age, Minsky's book explains what just happened better than the new books. He is the only economist I have ever read, who takes seriously the actual mechanics of our actual economy. His basic idea is that our modern post-New Deal economy is both more and less stable than the economy that came before. It is more stable, he believes, because massive government spending and major Federal Reserve interventions tend to prevent depressions and classical meltdowns. It is less stable, however, because there is nothing in our economy which constrains the tendency of the financial structure to create ever wilder speculative bubbles. On the contrary, our present system makes far worse the perennial capitalist problem of creating speculative bubbles by bailing out the system when it gets itself into trouble. In essence, the system rewards financial types with all of the upside from bubbles, but then protects from the downside when the bubbles burst. Not surprisingly, we get more and more bubbles.

Minksy really understands this stuff. Usually, when I read an academic economist I always have this feeling of a greater or lesser disconnection between theory and reality. Economists, as a whole, love their theories and do not have much use for the grittier aspects of reality. Minsky is a very, very welcome alternative to this. This book is simply indispensable; it is only book of economic theory to deal with the present crisis.

Which is not to say that I love every aspect of the book. I do not. I like books to be written in standard English, not jargon. Minsky writes in jargon. I like books to be fun to read and to flow well. This book was a bitch to read, and a really hard slog to get through. This book is no day at the beach; it is very, very technical.

I have two major reservations about the substance of the book. First, Minsky is a big fan of Keynes. Minksy is persuaded that no one but Minsky understands Keynes; he says many times that if the rest of us dolts ever caught on to Keynes, economics would be revolutionized. I am not persuaded. What I find compelling about Minsky is his analysis of the POST New Deal economy. In this book, he does not really argue for the Keynesian explanation of the Great Depression; instead, he just assumes that you buy off on it. I do not, and Minsky did not persuade me to change my mind. The fact that Minsky loves Keynes so much has made me reconsider my prior view that Keynes' thought is nothing but rubbish, but I am not sure how far in the pro-Keynes direction I am willing to go. At this point, all I will say is that Keynes has at least one really brillant follower, Minsky, so he was not a total washout.

My second issue with the book are the policy suggestions. Some of them are very good. The heart of the analysis is that the financial structure is unstable, because the ordinary constraints of the free market do not prevent it from blowing the economy up periodically. Minsky has very good ideas about the financial structure might be made more stable. Oddly enough, the heart of those ideas seems to be a variation on the old-fashioned "real bills" doctrine of Fed financing. But Minsky has a bunch of other policy issues that strike me as pretty stupid. Minsky is, in a weird idiosyncratic way, pretty far to the Left. He is not a socialist, but he is not a fan of capitalism either. He is very willing to consider lots of Big Government ideas that make absolutely no sense to me.

5 of 5 people found the following review helpful:

5.0 out of 5 stars I cannot believe that I'm the first reviewer of this book , February 25, 2009

By	R. Sala (Olivella 08818, Barcelona,Spain) - See all my reviews (REAL NAME)

I
The main theme is that our economic system, corporate capitalism, is essentially unstable because of the existence of the financial industry necessary for financing investment. It is very clear explaining the neoliberal synthesis and demonstrating that is useless to use it as a guide for our economy. It builds and explains which kind of economic theory will fit the real world we are living in.

It explains very well how we arrived at this desperate situation but Hyman Minsky could never imagine how to get out of today's catastrophic disaster when all the possible economic remedies have been used (interest rates near 0, gigantic liquidity injections, without even asking about the existing total debts of the financial institutions,...) because what is lacking is trust in the market and between the market players. In brief liquidity preferences are huge compared with investment ones.

I recommend it to everybody interested to know what to do now and what to avoid in the future.

1 of 1 people found the following review helpful:

5.0 out of 5 stars Brilliant study of a failed system, April 29, 2009

By	William Podmore (London United Kingdom) - See all my reviews (TOP 500 REVIEWER)    (REAL NAME)

This classic work of political economy, first published in 1986, has valuable lessons for us today. Minsky studies the recessions of 1975 and 1982, economic theory, institutions, particularly banks, and finally presents an agenda for reform.

Financial traumas have led to ever-worse recessions, in 1970, 1975, 1979-80, 1982, 1987, 2002 and the present. As he notes, "the normal functioning of our economy leads to financial trauma and crises, inflation, currency depreciations, unemployment, and poverty in the midst of what could be virtually universal affluence - in short, .. financially complex capitalism is inherently flawed." Yet he believes, "the collapse of aggregate demand and profits, such as occasionally occurred and often threatened to occur in pre-1933 small government capitalism, is never a clear and present danger in a Big Government capitalism such as has ruled since World War Two." Life is disproving this hope.

What causes these recessions? Minsky writes, "the Wall Streets of the world are important; they generate destabilizing forces. ... This instability is not due to external shocks or to the incompetence or ignorance of policy makers. Instability is due to the internal processes of our type of economy. The dynamics of a capitalist economy which has complex, sophisticated, and evolving financial structures leads to the development of conditions conducive to incoherence - to runaway inflations or deep depressions." Strangely, capitalism can't handle capital: "capitalism is flawed precisely because it cannot readily assimilate productive processes that use large-scale capital assets."

What is to be done? He warns, "Meaningful reforms cannot be put over by an advisory and administrative elite that is itself the architect of the existing situation." Then he stresses, "The emphasis on investment and `economic growth' rather than on employment as a policy objective is a mistake. A full-employment economy is bound to expand, whereas an economy that aims at accelerating growth through devices that induce capital-intensive private investment not only may not grow, but may be increasingly inequitable in its income distribution, inefficient in its choices of techniques and unstable in its overall performance." But, as Minsky acknowledges, capitalism cannot deliver full employment: "Capitalist market mechanisms cannot lead to a sustained, stable-price, full-employment equilibrium."

He proposes, "Public control, if not out-and-out public ownership, of large-scale capital-intensive production units is essential." He suggests nationalising the railroads and the nuclear power industry, as private enterprise runs both so poorly.

He also notes capitalism's other failures: "the market mechanism ... cannot and should not be relied upon for important, big matters such as the distribution of income, the maintenance of economic stability, the capital development of the economy, and the education and training of the young." It seems we can't rely on capitalism for anything.