Finance Matters

Today in the New Yorker John Cassidy asks “where is the new Keynes”?  Where, in other words, are the new ideas that have emerged from this historic economic crisis?  While there is nothing, he insists, comparable to a new Keynesianism, there has been a rediscovery of some “important ideas.”  The first:

1. Finance matters. This lesson might seem obvious to the man in the street, but many economists somehow managed to forget it. Two who didn’t were Hyman Minsky and Wynne Godley, both of who were associated with the Levy Institute for Economics at Bard College. Minksy’s now-famous “Financial Instability Hypothesis” can be found here, and one of Godley’s warnings about excessive household debt can be found here. (It is from 1999!)