A Minsky moment: reflections on Hyman P. Minsky (1919-1996).

Author:Whalen, Charles J.

In March of 2007, a decade after economist Hyman P. Minsky succumbed to cancer, economist George Magnus of the Swiss bank UBS wrote a research paper entitled "The Credit Cycle and Liquidity: Have We Arrived at a Minsky Moment?" (Magnus 2007). By August, that moment--in the form of the housing-led credit crunch--had arrived, according to Paul McCulley, an economist and bond fund manager at Pacific Investment Management (who is said to have coined the term "Minsky moment" during the Russian debt crisis of 1998). In fact, a front-page story in the August 18, 2007, edition of The Wall Street Journal declared that Minsky's views "have suddenly become very popular" and "are reverberating from New York to Hong Kong as economists and traders try to understand what's happening" in financial markets (Lahart 2007).

Who was Minsky, and why all the fuss over his ideas more than 10 years after his passing in late 1996? Minsky was born in Chicago in 1919, studied at the University of Chicago and Harvard University, and earned tenure as an economics professor at the University of California at Berkeley. He later moved to Washington University in St. Louis and eventually to the Jerome Levy Economics Institute of Bard College, where he served as a senior scholar in the 1990s. He considered himself a Financial Keynesian, and was a leading figure in the post-Keynesian movement, which seeks to liberate John Maynard Keynes's insights from neoclassical theory.

Minsky is best known for the "financial instability hypothesis," which suggests that sectoral and/or economy-wide expansions tend toward unsustainable booms culminating in financial crises and economic downturns. It is this hypothesis that many now find useful for the purpose of analyzing the credit crunch of 2007, especially in conjunction with his thoughts on the rise in recent decades of what he called "money-manager capitalism" (Minsky 1986; 1990). (1)

With Minsky's ideas as relevant and popular as ever, I recently had the opportunity to deliver a university lecture on the enduring significance of his economic perspective. (2) In the process, I came across reflections on Minsky that I presented to attendees at a 1997 roundtable devoted to his economics. Having also prepared a formal paper for the session, the reflections, a Minsky moment of a different sort, were not published--until now. (3)

What follows are the reflections on Minsky that I presented 10 years ago. In light of the new and extensive attention now being given to Minsky's ideas, I am grateful to the editor of this journal for the opportunity to share these reflections with a wider audience.

I was first introduced to the writings of Hy Minsky in the early 1980s. (4) Despite dutifully learning neoclassical economics as part of my graduate studies, I refused to accept the notion of self-regulating markets. For me, just too much seemed left out of the mainstream picture. As a result, a sympathetic professor suggested I read...

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