An Insider’s View on the Economics of Hyman Minsky
Chapter 14: The financial instability hypothesis, inequality and the Great Recession
This chapter tries to apply the financial instability hypothesis to a context, namely the Great Recession, which is different from that which prevailed in the Great Depression. This time debt related to consumption is at center stage, while debt deflation did not occur. In the present chapter a dynamic model driven by a consumption function based upon two fundamental forces – i) emulation and ii) financial aspects – is presented. In a sense, it is a generalization of Minsky’s financial instability hypothesis. These two forces presuppose a monetary economy of production marked by inequality in income and wealth. Inserted into a dynamic model, this consumption function can generate complex dynamic patterns, where the possibility of bubbles and runaway situations is indeed very large. An evolutionary perspective is eventually considered.
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