Assessing the Contribution of Hyman Minsky's Perspective to Our Understanding of Economic Instability

Abstract

A juxtaposition of the key ideas in Hyman Minsky’s writings against passages from the Financial Crisis Inquiry Commission makes clear that Minsky’s main ideas about economic instability were prescient. Nevertheless, Minsky did not provide a well defined model of his framework, which might be one of the reasons his ideas have not been more readily accepted by economists, policy makers, and the media. In addition, behavioral economics was not well developed during most of Minsky’s career, and he did not provide a strong psychological foundation for his assertions about behavior. This paper uses ideas from behavioral economics to extend the treatment of psychology in Minsky’s framework as well as the role psychology has played in limiting the influence of his work.