The economist Hyman Minsky’s work on market crashes has become very popular in recent years now that everyone is on bubble n’ crash watch. The BBC looks at five of his most important ideas this week in an excellent primer for the uninitiated.
First up – the idea that nothing is more dangerous than a market that fears nothing:
Minsky’s main idea is so simple that it could fit on a T-shirt, with just three words: “Stability is destabilising.”
Most macroeconomists work with what they call “equilibrium models” – the idea is that a modern market economy is fundamentally stable. That is not to say nothing ever changes but it grows in a steady way.
To generate an economic crisis or a sudden boom some sort of external shock has to occur – whether that be a rise in oil prices, a war or the invention of the internet.
Minsky disagreed. He thought that the system itself could generate shocks through its own internal dynamics. He believed that during periods of economic stability, banks, firms and other economic agents become complacent.
They assume that the good times will keep on going and begin to take ever greater risks in pursuit of profit. So the seeds of the next crisis are sown in the good time.
It doesn’t get much truer than that. The rest at the link below.