Handbook of Economic Stagnation

Chapter Six: Hyman Minsky meets secular stagnation ^∗

Steven M. Fazzari      Departments of Economics and Sociology, Washington University, St. Louis, MO, United States

Abstract

Hyman Minsky's contribution to macroeconomics is best known for describing how financial instability explains the cyclical nature of capitalism. This chapter provides a basic exposition of Minsky's financial instability theory focusing on two key concepts: “validation” of more risky financial practices during an expansion and rising “fragility” of the financial structure as validation proceeds. Eventually, rising fragility causes a macroeconomic crisis. The crisis purges fragility and resets the stage for another cycle of the validation-fragility process. Although ...