Socialization of Risks without Socialization of Investment: The Minsky Paradox and the Structural Contradiction of Big Government Capitalism

Minqi Li

Working Papers from Political Economy Research Institute, University of Massachusetts at Amherst

Abstract: A big government sector is indispensable for the normal operations of modern capitalist economy. However, the very success of the big government institutions encourages private investors to engage in excessive risk-taking activities, leading to growing financial fragility and frequent financial crises. The crises necessitate government interventions, forcing the government to run large deficits during recessions. These deficits, however, are not offset by surpluses during expansions. As a result, there is a tendency for the government debt to rise in relation to GDP. The government debt-GDP ratios cannot keep rising indefinitely. Beyond certain point, the debt-GDP ratio could be so high that the government’s ability to intervene with and stabilize the economy would be severely undermined. This may be characterized as the structural contradiction of big government capitalism.

JEL-codes: E12 E30 E60 H60 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-fdg and nep-pke
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Citations: View citations in EconPapers (1)

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