Extending MinskyÕs Classifications of Fragility to Government and the Open Economy

L. Randall Wray

Economics Working Paper Archive from Levy Economics Institute, The

Abstract: MinskyÕs classification of fragility according to hedge, speculative, and Ponzi positions is well-known. He wrote about fragile positions of individual firms and of the economy as a whole, with the economy transitioning naturally from a robust financial structure (dominated by hedge units) to a fragile structure (dominated by speculative units). In most of MinskyÕs writing, he introduced government through its impact on the private sector with its spending and balance sheet operations as stabilizing forces (although he insisted that stability is ultimately destabilizing). On a few occasions he also analyzed the governmentÕs own balance sheet position. More rarely, Minsky extended his analysis to the open economy, examining the fragility of external debt positions. In these works, he analyzed the United States as the ÒworldÕs bankÓ and discussed the impact of various U.S. balance sheet positions on the rest of the world. This paper will carefully examine MinskyÕs position on these topics, and will offer an extension of MinskyÕs work. It will also examine the ÒsustainabilityÓ of the current Òtwin U.S. deficits.Ó

New Economics Papers: this item is included in nep-mac and nep-pke
Date: 2006-05
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