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World Finance and Economic Stability

Selected Essays of James Tobin

James Tobin

Nobel Prize winner James Tobin has made outstanding contributions to modern macroeconomics. In this final collection of his work he examines the economic policies of the United States and its relations with other major economies after 1990. In James Tobin’s view, the welfare of populations depends uniquely on these policies and it is important to be aware of their impact.
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Chapter 27: On Minsky's agenda for reform

James Tobin


27. On Minsky’s agenda for reform In economics, theory and policy are intimately related. Policy recommendations are derived from theory, and in turn theory is revealed by dicta regarding policy. Chapter 13 of Minsky’s Stabilizing an Unstable Economy is an unusually complete design. Here is Hy Minsky’s conception of a stable, prosperous, efficient, equitable capitalist system. It is the final chapter of his 1986 book, and I found it the most revealing exposition of Minsky’s theory and his differences from other versions of Keynesian economics. It is an ambitious and comprehensive manifesto. Minsky’s objective is no less than to design a self-regulated system, one that does not depend on frequent discretionary policy moves, whether by central banks, finance ministries, regulators or legislatures. It is not that Minsky is fashionably advocating rules for policy makers rather than discretion. It is not that he is trusting an Adam Smith–Gerard Debreu Invisible Hand, although he does see an indispensable role for market competition and proposes a number of institutions to protect and promote it. It is not that he derogates the roles of government, either micro or macro. To the contrary, his self-regulating capitalist economy depends for its stability on Big Government, the source of macroeconomic built-in countercyclical variations of aggregate demand and thus of profits. The federal government, according to Minsky, should account for about 20 per cent of full-employment GDP. Full employment he identifies with 6 per cent unemployment, although he surely and gladly would now...

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