Financial instability and functional finance: a Lerner-Minsky perspective

Faruk Ülgen

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Abstract: In the wake of the 2007/08 financial crisis, massive public interventions in markets that sought to mitigate the subsequent depression have resulted in huge deficits without being able to calm down the nervousness of markets and the rise of unemployment. A counterproductive dilemma then came into the picture through the opposition between deficit creating reflationary policies and conservative budgetary policies. The "original sin" of such a debate lies in the implicit assumption that active public spending is harmful to economic activity at long run without providing consistent analysis of the malfunctioning of financialized and weakened economies. This paper suggests another alternative by bringing together functional finance of Abba Lerner and financial instability hypothesis of Hyman Minsky in order to state the principles of an alternative macroeconomic stabilization framework able to prevent disequilibria-fuelling speculative finance and to sustain job-creating productive activities.

Keywords: Functional finance; financial instability; regulation; macroeconomic stabilization (search for similar items in EconPapers)
Date: 2014
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Published in Mamica, L., Tridico, P. Economic policy and the financial crisis, Routledge, pp.148-162, 2014

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Working Paper: Financial instability and functional finance: a Lerner-Minsky perspective (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01113534

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