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Extending Minsky's Classifications of Fragility to Government and the Open Economy

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  • L. Randall Wray
Abstract
Minsky's 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 Minsky's 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 government's 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 "world's bank" and discussed the impact of various U.S. balance sheet positions on the rest of the world. This paper will carefully examine Minsky's position on these topics, and will offer an extension of Minsky's work. It will also examine the "sustainability" of the current "twin U.S. deficits."

Suggested Citation

  • L. Randall Wray, 2006. "Extending Minsky's Classifications of Fragility to Government and the Open Economy," Economics Working Paper Archive wp_450, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_450
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    References listed on IDEAS

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    1. Wynne Godley, 2005. "Some Unpleasant American Arithmetic," Economics Policy Note Archive 05-5, Levy Economics Institute.
    2. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 11-66, National Bureau of Economic Research, Inc.
    3. Wynne Godley & Dimitri B. Papadimitriou & Claudio H. Dos Santos & Gennaro Zezza, 2005. "The United States and Her Creditors: Can the Symbiosis Last?," Economics Strategic Analysis Archive sa_sep_05, Levy Economics Institute.
    4. L. Randall Wray, 1998. "Understanding Modern Money," Books, Edward Elgar Publishing, number 1668.
    5. Stephanie Bell, 2000. "Do Taxes and Bonds Finance Government Spending?," Journal of Economic Issues, Taylor & Francis Journals, vol. 34(3), pages 603-620, September.
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    Cited by:

    1. Georgios Argitis & Maria Nikolaidi, 2014. "The financial fragility and the crisis of the Greek government sector," International Review of Applied Economics, Taylor & Francis Journals, vol. 28(3), pages 274-292, May.
    2. Charles Whalen, 2008. "Toward ‘Wisely Managed’ Capitalism: Post-Keynesian Institutionalism and the Creative State," Forum for Social Economics, Taylor & Francis Journals, vol. 37(1), pages 43-60, January.

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