Minsky crisis

Stability is destabilizing. Those three words capture in a concise manner the insight that underlies Minsky’s analysis of the transformation of the economy over the entire post-war period. The basic thesis is that the dynamic forces of the capitalist economy are explosive so that they must be contained by institutional ceilings and floors—part of the ‘safety net’. However, to the extent that the constraints successfully achieve some semblance of stability, that will change behaviour in such a manner that the ceiling will be breached in an unsustainable speculative euphoria. If the inevitable crash is cushioned by the institutional floors, the risky behaviour that caused the boom will be rewarded. Another boom will build, and its crash will again test the safety net. Over time, the crises become increasingly frequent and severe until finally ‘it’ (a great depression with a debt deflation) becomes possible.