A Theory of Minsky Super-cycles and Financial Crises

Abstract

Chapter 4 emphasized the relevance of the ideas of Hyman Minsky for understanding business cycles. However, Minsky’s ideas, as developed in his financial instability hypothesis, extend beyond standard cycle analysis and provide an encompassing frame for understanding financialization, albeit one that emphasizes instability. Chapters 2 and 3 focused on the income redistribution aspects of financialization and the role of financial markets, especially credit, in filling resulting demand shortages. Minsky’s theory adds a rich evolutionary dynamic that explains why financialization has a tendency to instability. That tendency is supported by the microeconomics of managerial herd behavior and short-termism, which were examined in Chapters 6 and 7.