The Macroeconomics of Basic Income Grants Jayati Ghosh

In a time of short or no historical memory, it is easy to believe that some ideas are completely novel and innovative. So it is with the idea of the “Universal Basic Income”, which is getting much exposure in both developed and developing countries as a fundamentally new policy to deal with contemporary inequalities and the increasing uncertainty around employment generation. I have already considered some of the advantages and concerns with this idea, specifically in the Indian context, in a previous column (http://www.frontline.in/columns/Jayati_Ghosh/a-universal-basic-income-in-india/article9511636.ece). But it is worth looking in more detail at the history of this idea, and some…

How the Full Opening of the Capital Account to Highly Liquid Financial Markets Led Latin America to Two and a Half Cycles of ‘Mania, Panic and Crash’ José Gabriel Palma

Latin America has recently experienced three cycles of capital inflows, the first two ending in major financial crises. The author analyses the dynamics of the second cycle — from the 1989 ‘Brady-bonds agreement’ to the Argentinian 2001/2002 crisis (and 9/11). It is argued that these financial crises took place mostly due to factors that were intrinsic to the workings of over-liquid and under-regulated financial markets — and as such, they were both fully deserved and fairly predictable. In short, these crises point not just to major market failures, but to a systemic market failure. mania_panic_crash (Download the full text in…

The Limits of Minsky’s Financial Instability Hypothesis as an Explanation of the Crisis Thomas I. Palley

In this paper the author argues that the interpretation of the financial crisis as a Minsky crisis is misleading, as the processes identified in Minsky’s financial instability hypothesis, even when playing a critical role in the crisis, are part of a larger economic drama involving the neoliberal growth model. Interpretation of the financial crisis as a purely financial crisis—in the spirit of a pure Minsky crisis—and the attendant policy prescription of simply fixing the financial system may, in fact, worsen stagnation. limits_minsky (Download the full text in PDF format)

Minsky’s “Cushions of Safety”, Systemic Risk and the Crisis in the US Subprime Mortgage Market Jan Kregel

The sub prime crisis in the US has little to do with the mortgage market, or subprime mortgages per se, but rather with the basic structure of the financial system that produces overestimates of creditworthiness and underpricing of risk. The bottom line is that the system has been structured to make credit too cheap, leading to excessive risk in order to provide higher returns. The financial fragility that was identified in Minsky’s work cannot be eliminated, only damped by systemic policies. However, it is possible to eliminate fragility that emerges from the structure and regulation of the financial system. mortgage_market…