Archive for March 23rd, 2011

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The Levy Economics Institute of Bard College is pleased to announce that it will hold the second annual Minsky Summer Seminar June 18–26, 2011. The Seminar will provide a rigorous discussion of both the theoretical and applied aspects of Minsky’s economics, with an examination of meaningful prescriptive policies relevant to the current economic and financial crisis.

This summer seminar at the Levy Institute is probably one of the most important economics seminars that will take place this year. Minsky’s theories, which are completely absent from any top, mainstream economics graduate program, explain the inherent instability of financial markets as part of the normal cycle of the economy. During prosperous times, speculative euphoria leads to an endogenous credit bubble. This credit fueled euphoria is of course unstable, an eventually leads to panic and financial crisis.

The tools used in mainstream macroeconomics completely rule out any possibility of asking these types of questions. Dynamic optimization done by a representative household and a representative firm limits macroeconomics to consider the “stable equilibrium” of the economy, and the only questions that can be asked concern what happens when there are slight deviations from that stable point. The answer, of course, is that the market forces and arbitrary opportunities push the economy back to the stable point.

Economic historian Charles P. Kindleberger was likely the foremost authority on economic bubbles. In Manias, Panics, and Crashes: A History of Financial Crises (2005) Kindleberger surveyed major financial crashes and used the Minsky model to understand their evolution. Had this work been taken seriously when it was published in 2005, we would almost certainly have been better prepared to deal with the subprime mortgage crisis. But instead, it took the largest  economic crisis since the Great Depression to bring renewed interest to Minsky’s model. Hopefully, the Levy Institute will continue to help us make sense of this extremely important phenomenon that the mainstream has neglected.

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