Stabilization policies and banking behaviors: a rereading of Minsky's conception of business cycles

The aim of this paper is to enlighten the current debates about the efficiency of economic stabilization policies by founding my analysis on the conception of business cycles developed by Minsky in his earliest works at the end of the fifties. The argument is developed in three steps. First, it is shown that Minsky's conception of business cycles is influenced by the nonlinear models with floors and ceilings developed by Hicks and Goodwin in the 1950s. These models indeed provide a relevant theoretical framework for the Minskyan analysis of stabilization policies which act as 'thwarting systems' whose purpose is to counteract and contain the naturally explosive amplitude of economic fluctuations. They also allow a better understanding of his theory of financial instability. Contrarily to the widespread interpretation, the Minskyan Financial Instability Hypothesis cannot be reduced to an endogenous and financial conception of economic fluctuations only founded on the behavior of private economic agents: public authorities, through their stabilization policies, also play a central role in explaining the form of business cycles (Section 2). Second, the central role played by banks in Minsky's analysis of fluctuations is highlighted. I emphasize that the behavior of banks is guided essentially by the permanent quest for profit opportunities in the tradition of authors as Tobin or Schumpeter. Such a feature is crucial in understanding Minsky's conception of business cycles since it allows explaining how banks' behaviors undermine the efficiency of stabilization policies and therefore determine the form of economic fluctuations (Section 3). Finally, Section 4 briefly assesses the relevance of Minsky's approach in the understanding of recent pre- and post- crisis stabilization policies and concludes.