A Minsky-Fisher-Koo-Keynes Theory Of Boom And Bust

The financial crisis and recession has turned economic thinking on its head. Economic textbooks which presume recessions never occur and unemployment is a voluntary decision have failed to keep up. However, luckily there have been a group of economists who have created theories that describe the world as it really is, not as they wish it was. They took key insights from the Roaring Twenties and the Depression Thirties and individually developed theories for how the economy boomed and why it went bust. There is Hyman Minsky’s Financial Instability Hypothesis, Irving Fisher’s Debt-Deflation Spiral, Richard Koo’s Balance Sheet Recession and John Maynard Keynes theory of aggregate demand. Each explains a part of the business cycle, today I want to piece them altogether to create an overarching theory. Continue reading “A Minsky-Fisher-Koo-Keynes Theory Of Boom And Bust”

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The Man Who Saw The Crash Coming

The financial crash in 2008 came as a surprise to most economists. The believed markets were sufficient and will produce prosperity for all if left to their own devices. However one little known economist had predicted it and developed a theory explaining it. He devised a theory explaining how lenders become lax with their standards, over optimistic and over extend themselves leading to a crash. Even more impressively he did this back in the 70s and 80s so can’t be accused of jumping on the bandwagon. His name is Hyman Minsky (1919-1996) and the theory is called “The Financial Instability Hypothesis”. Continue reading “The Man Who Saw The Crash Coming”