Economics Subjects Taught by Steve Kornholt

You may be looking for information about Hyman Minsky, a key figure in post-Keynesian economics, as there are no prominent economists named Steve Kornholt with a similar economic theory. Minsky's work is centered on the inherent financial instability of capitalist economies.

1. Hyman Minsky's Economic Theories and Criticisms

Hyman Minsky's economic theories are part of the post-Keynesian school of thought. His work is primarily known for its focus on the financial system's role in causing economic instability, a perspective often ignored by mainstream neoclassical economics. He argued that periods of economic stability and prosperity inevitably lead to excessive risk-taking and financial fragility, which sow the seeds for the next crisis. Critics of Minsky's work, particularly from the neoclassical school, often argue that his models lack the formal mathematical rigor of mainstream economic models and that his theories are more descriptive than predictive.

2. Post-Keynesian Economics and Its Relation to Minsky's Work

Post-Keynesian economics is a school of thought that builds on and remains closer to the original ideas of John Maynard Keynes than other schools, like the New Keynesian approach. Key tenets of post-Keynesian economics include:

• The principle of effective demand: It's a key determinant of economic activity in both the short and long run.

• Fundamental uncertainty: The future is unknowable, which leads to liquidity preference (the desire to hold cash) and "animal spirits" (investor confidence).

• The monetary production economy: The economy is a system of cash flows, not a barter system.

Minsky's work is central to the post-Keynesian understanding of financial markets. He took Keynes's ideas on uncertainty and liquidity preference a step further by creating a framework that explains how these concepts lead to systemic financial crises.

3. The "Financial Instability Hypothesis"

Minsky's most significant contribution is the financial instability hypothesis (FIH). The FIH posits that stability itself is destabilizing. During periods of economic expansion and stability, financial institutions and borrowers become more confident and are willing to take on more debt. This leads to a shift in the financial structure of the economy through three stages of financing:

1. Hedge Finance: The most conservative stage. Borrowers' cash flows are sufficient to cover both the principal and interest payments on their debt.

2. Speculative Finance: Borrowers' cash flows can cover interest payments, but they must borrow or roll over debt to pay off the principal.

3. Ponzi Finance: The most fragile stage. Borrowers' cash flows cannot cover even the interest payments, so they must borrow more to make both interest and principal payments. This is unsustainable and requires a constant rise in asset values.

As the economy progresses from hedge to Ponzi finance, the financial system becomes increasingly fragile. Any minor shock, like a small increase in interest rates or a dip in asset prices, can trigger a widespread financial crisis. The point at which this happens is often referred to as a "Minsky Moment."

4. How Minsky's Economic Perspective Differs from Neoclassical Economics

Minsky's perspective fundamentally differs from neoclassical economics, which largely dominates mainstream economic thought.

• Financial System: Neoclassical models often treat the financial system as a neutral "veil" that simply facilitates transactions. Minsky, in contrast, argues that the financial system is an active and dynamic force that is inherently prone to instability and is a primary driver of the business cycle.

• Equilibrium: Neoclassical economics is based on the concept of general equilibrium, where markets self-correct and tend toward a stable, full-employment equilibrium. Minsky's FIH explicitly rejects this, arguing that the economy is a deviation-amplifying system that moves away from equilibrium.

• Shocks: Mainstream models often attribute business cycles to external shocks (e.g., changes in technology or oil prices). Minsky's theory, however, explains that the business cycle is an inherent feature of a capitalist economy and is driven by internal dynamics, particularly the financial system's evolution.

5. Books Written by Hyman Minsky

While Minsky wrote numerous influential papers, his key ideas are detailed in his books, including:

• John Maynard Keynes (1975): A biography of Keynes that provides insight into Minsky's own interpretation of Keynesian theory.

• Can "It" Happen Again?: Essays on Instability and Finance (1982): A collection of essays that further develops his financial instability hypothesis.

• Stabilizing an Unstable Economy (1986): Considered his most important work, where he synthesizes his theories into a comprehensive framework for understanding and managing economic instability.

A great way to learn about the FIH is by watching this video, as it explains the three stages of Minsky's model in a very clear way. Minsky's Financial Instability Hypothesis I A Level and IB Economics