We're All Minskyites Now

As the most severe financial crisis since the 1930s Depression has unfolded over the past eighteen months, the ideas of the late economist Hyman Minsky have suddenly come into fashion. In the summer of 2007, the Wall Street Journal ran a front-page article describing the emerging crisis as the financial market's "Minsky moment." His ideas have since been featured in the Financial Times, BusinessWeek and The New Yorker, among many other outlets. Minsky, who spent most of his academic career at Washington University in St. Louis and remained professionally active until his death, in 1996, deserves the recognition. He was his generation's most insightful analyst of financial markets and the causes of financial crises.

Even so, most mainstream economists have shunned his work because it emerged out of a dissident left Keynesian tradition known in economists' circles as post-Keynesianism. Minsky's writings, and the post-Keynesian tradition more generally, are highly critical of free-market capitalism and its defenders in the economics profession--among them Milton Friedman and other Nobel Prize-winning economists who for a generation have claimed to "prove," usually through elaborate mathematical models, that unregulated markets are inherently rational, stable and fair. For Friedmanites, regulations are harmful most of the time.

Minsky, by contrast, explained throughout his voluminous writings that unregulated markets will always produce instability and crises. He alternately termed his approach "the financial instability hypothesis" and "the Wall Street paradigm."

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