“Stability breeds instability?” A Minskian analysis of the crisis of the Asian Tigers in the 1990s

Abstract

The recent disruptions within the global financial system have led to a notable reassessment of heterodox economic theories in hope that their unique insights into the capitalist business cycle can help illuminate the underlying instabilities that may have contributed to recent crises. This paper focuses in particular on the work of noted post-Keynesian economist Hyman P. Minsky and his associated theories of financial fragility and the inherent instability of modern financial capitalism. We emphasize the theoretical foundations of Minsky's work, notably his financial instability hypothesis, and then apply this conceptual framework to the recent Asian financial crisis of 1997-98. Financial instability and overleveraging were important features in the Asian crisis, thus proving the validity of some of Minsky's assertions. The massive increases in speculation and dependence on external capital drove these economies toward a Minsky moment, when the bubble eventually burst.