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Economic Insecurity and the Institutional Prerequisites for Successful Capitalism

Author

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  • Hyman P. Minsky

    (The Jerome Levy Economics Institute)

  • Charles J. Whalen

    (The Jerome Levy Economics Institute)

Abstract

In this paper, which marks the fiftieth anniversary of the Employment Act of 1946, Distinguished Scholar Hyman P. Minsky and Visiting Scholar Charles J. Whalen search for reasons to account for the difference between economic performance in the period from 1946 to 1966 and performance from 1966 to the present. The authors discuss a number of economic problems that arose during the later period, including slower growth, stagnant earnings, rising financial instability, and increasing inequality. Minsky and Whalen acknowledge that factors such as globalization and technological change have undoubtedly played a role in the split performance. However, an often overlooked, but important factor is the evolution of the U.S. financial structure during recent decades. The authors explain that a key component of that evolution has been the rise of "money manager" capitalism. Important features of money manager capitalism are increased financial fragility (lower margins of safety in indebtedness and a greater reliance on debt relative to internal finance) and the introduction into the financial structure of a new layer of intermediation. In particular, managers of pensions, trusts, and mutual funds currently control the largest share of the liabilities of corporations. These managers are judged by only one criterion: how well they maximize the value of funds. As a result, business leaders have become increasingly sensitive to the stock market valuation of their firm. Minsky and Whalen assert that current economic problems require that we reconsider how to measure economic success. In the early postwar period American policymakers could focus on overall economic growth, unemployment, and inflation. These measures, however, are no longer sufficient as indicators of citizen well-being given existing wage stagnation and widespread employment insecurity resulting from longer employment searches, increased dependence on multiple job holdings, and the explosive growth in part-time and contingent work.

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  • Hyman P. Minsky & Charles J. Whalen, 1998. "Economic Insecurity and the Institutional Prerequisites for Successful Capitalism," Macroeconomics 9807001, EconWPA.
  • Handle: RePEc:wpa:wuwpma:9807001
    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 23; figures: included
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    References listed on IDEAS

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    1. Hyman P. Minsky & Dimitri B. Papadimitriou & Ronnie J. Phillips & L. Randall Wray, 1992. "Community Development Banks," Economics Working Paper Archive wp_83, Levy Economics Institute.
    2. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    3. Ellen R. Rissman, 1988. "Why is inflation so low?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Aug.
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    Cited by:

    1. Mariana Mazzucato & Caetano C.R. Penna, 2014. "Beyond Market Failures: The Market Creating and Shaping Roles of State Investment Banks," Working Papers Series 7, Institute for New Economic Thinking.
    2. Jan Toporowski, 2013. "The Elgar Companion to Hyman Minsky," Review of Political Economy, Taylor & Francis Journals, vol. 25(1), pages 175-177, January.
    3. Leszek Kąsek & Marek Lubiński, 2010. "hyman," Contemporary Economics, University of Finance and Management in Warsaw, vol. 4(1), March.
    4. Charles J. Whalen, 2011. "Human Resources: The Key to Institutional Economics after the Great Recession," Chapters,in: The Global Financial Crisis, chapter 12 Edward Elgar Publishing.
    5. Lino Sau, 2012. "Evolution of China's financial system and its impact on economic development," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 5(1), pages 1-15.
    6. Hein, Eckhard & Dodig, Nina & Budyldina, Natalia, 2014. "Financial, economic and social systems: French Regulation School, Social Structures of Accumulation and Post-Keynesian approaches compared," IPE Working Papers 34/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    7. L. Randall Wray, 2011. "What Should a Financial System Do? Minskian Lessons from the Global Financial Crisis," Chapters,in: The Global Financial Crisis, chapter 13 Edward Elgar Publishing.
    8. Charles J. Whalen, 2017. "Understanding Financialization: Standing on the Shoulders of Minsky," Economics Working Paper Archive wp_892, Levy Economics Institute.
    9. Strachman, Eduardo & Vasconcelos, Marcos Roberto, 2001. "An institutional analysis of some monetary issues in developing economies," MPRA Paper 15128, University Library of Munich, Germany, revised May 2009.
    10. Malcolm Sawyer, 2001. "Minsky's analysis, the European single currency and the global financial system," Chapters,in: Financial Keynesianism and Market Instability, chapter 10 Edward Elgar Publishing.
    11. Charles Whalen, 2011. "Minsky Goes to Buffalo—and Takes on the Economics Establishment," Forum for Social Economics, Springer;The Association for Social Economics, vol. 40(2), pages 273-280, July.
    12. Charles J. Whalen, 2000. "Hyman Minsky's Theory of Capitalist Development," Macroeconomics 0004024, EconWPA.
    13. Papadimitriu, Dimitri & Wray, Randall, 2016. "Hyman Minsky's "Stabilizing an unstable economy" - twenty years later," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 2, pages 22-51, April.
    14. Charles J. Whalen, 2013. "Post-Keynesian Institutionalism after the Great Recession," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 10(1), pages 12-27.
    15. Marshall Auerback & Paul McCulley & Robert W. Parenteau, 2010. "What Would Minsky Do?," Chapters,in: The Elgar Companion to Hyman Minsky, chapter 6 Edward Elgar Publishing.
    16. Christine Sinapi, 2011. "Institutional Prerequisites of Financial Fragility within Minsky's Financial Instability Hypothesis: A Proposal in Terms of 'Institutional Fragility'," Economics Working Paper Archive wp_674, Levy Economics Institute.
    17. L. Randall Wray, 2010. "What Do Banks Do? What Should Banks Do?," Economics Working Paper Archive wp_612, Levy Economics Institute.
    18. Steven Kates (ed.), 2011. "The Global Financial Crisis," Books, Edward Elgar Publishing, number 14454.
    19. Elisabetta De Antoni, 2012. "The General Theory after the subprime crisis: a Minskyan perspective," Chapters,in: Keynes’s General Theory for Today, chapter 9, pages 151-166 Edward Elgar Publishing.
    20. Charles J. Whalen, 1999. "Hyman Minsky's Theory of Capitalist Development," Economics Working Paper Archive wp_277, Levy Economics Institute.
    21. Fadhel Kaboub, 2011. "Understanding and preventing financial instability; Post-Keynesian Institutionalism and government employer of last resort," Chapters,in: Financial Instability and Economic Security after the Great Recession, chapter 4, pages 77-92 Edward Elgar Publishing.
    22. Sverre Knutsen, 2012. "Why do banking crises occur? The American subprime crisis compared with the Norwegian banking crisis 1987-92," Working Paper 2012/03, Norges Bank.
    23. Hyman P. Minsky & L. Randall Wray, 2008. "Securitization," Economics Policy Note Archive 08-2, Levy Economics Institute.
    24. L. Randall Wray, 2012. "Global Financial Crisis: A Minskyan Interpretation of the Causes, the Fed's Bailout, and the Future," Economics Working Paper Archive wp_711, Levy Economics Institute.
    25. L. Randall Wray, 2011. "Lessons We Should Have Learned from the Global Financial Crisis but Didn't," Economics Working Paper Archive wp_681, Levy Economics Institute.

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    • E - Macroeconomics and Monetary Economics

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