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9Th Annual Hyman Minsky Conference on Financial Structure C o n f e r e n c e P r o c e e d i n g s A N N U A L H Y M A N P . M I N S K Y C O N F E R E N C E O N F I N A N C I A L S T R U C T U R E S t ru c t u re, Instability, and the World Economy: Reflections on the Economics of Hyman P. Minsky April 21–23, 1999 Annandale-on-Hudson, NewYo r k C o n t e n t s F o r e w o r d 2 P r o g r a m 3 S p e a k e r s S Jay Levy 7 David A. Levy 14 Laurence H. Meyer 21 Martin Mayer 28 Richard S. Carnell 31 Wynne Godley 34 Edward M. Gramlich 34 S e s s i o n s 1. Minsky and the Good Society 36 2. Monetary and Financial Policies 40 3. Interrelationships between Finance and Investment 44 4. Irrational Exuberance 50 5. International Institutional Restructuring 53 6. The Financial Instability Hypothesis 61 7. Global Financial Crises: “It” Happened Again in Latin America 65 8. Global Financial Crises: “It” Happened Again in Asia 68 About the Par t i c i p a n t s 72 The proceedings consist of edited transcripts of the speakers’ remarks and synopses of session participants’ presentations. F o r e w o r d For more than three decades, Hyman P. Minsky studied the financial fragility inherent in advanced economies with complex financial systems. He analyzed the Great Depression to determine the conditions under which such instability occurs—the conditions under which “it” could happen again—and he focused on the link between the financial system and the real economy. Minsky’s lifelong work has particular relevance and significance for the global system in which today’s interconnected economies operate. In trying to find out what went wrong in Asia, we started with the questions recent textbooks tell us to ask: Did these economies run large budget deficits? Did they have expan- sionary monetary policies? Analysis of relevant statistics showed us that neither of these presented a problem. There now is a consensus that Minsky’s concept of financial instability is a more fruitful starting point for analysis and that it contains insights applicable to an international system. The Asian crisis can then be seen as developing out of vulnerabilities in the financial system itself—information not always available or attended to, regulators not doing their job properly, inappropriate behavior based on an incorrect appraisal of risks, the economics of euphoria, moral hazard created by government and central bank policies, and the spillover effects of all these problems in the financial system on the real economy. We all talk about “globalization,” recognizing that markets have become global in scope and that economies have become interdependent. However, governments are not global. And this, as Danny Roderick of the Kennedy School at Harvard has said, “creates a dilemma that we need to deal with.” The presentations made at this ninth annual conference named for Minsky deal with selected aspects of Minsky’s work. (His pro- posals were not limited to reforming the financial system, but included policies to achieve full employment, rising living standards, and income security for the average household.) His work on instability and the link between the financial system and the real economy provides a foundation on which we can begin to construct a coherent policy on which nations can agree that will enable them to contain instability in the international framework of the global economy. Dimitri B. Papadimitriou President 2 The Jerome Levy Economics Institute of Bard College P r o g r a m WE D N E S D AY, AP R I L 2 1 8:30–9:30 A.M. BR E A K FA S T A N D RE G I S T R AT I O N 9:30–10:00 A.M. WE L C O M E A N D IN T R O D U C T I O N Dimitri B. Papadimitriou, President, Levy Institute 10:00–10:45 A.M. S P E A K E R Wynne Godley, Distinguished Scholar, Levy Institute “Unsustainable Processes: Prospects and Policies for the United States and the Wor l d ” 10:45 A.M.–12:15 P. M.SE S S I O N 1. MI N S K Y A N D T H E GO O D SO C I E T Y Moderator: Mathew Forstater, Levy Institute Mu r ray Wei d e n b a u m , Washington University in St. Louis “Reconsidering Minsky’s View on Transfer Payments and Go v e r nment Interve n t i o n ” Charles J. Whalen, C o rnell University; Zhongshan University “Hyman Minsky’s Theory of Capitalist Development” Ed w a r d J. Nell, New School University “The Simple Theory of Unemployment” 12:15–1:45 P. M . LU N C H E O N Speaker: S Jay Levy, C h a i rman, Levy Institute “Poor Grandma and Grandpa Baby Boomer” 1:45–3:15 P. M . SE S S I O N 2. MO N E TA RY A N D FI N A N C I A L PO L I C I E S Moderator: Dimitri B. Papadimitriou, Levy Institute James Tob i n , Yale University “On Minsky’s Agenda for Reform” C. A. E. Goodhart, London School of Economics “M o n e t a r y Policy Adjustments with Asset Price Fluctuations” Jan Top o ro w s k i , South Bank University “M o n e t a r y Policy in an Era of Capital Market Inflation” 3:15–4:45 P. M . SE S S I O N 3. IN T E R R E L AT I O N S H I P S B E T W E E N FI N A N C E A N D IN V E S T M E N T Moderator: Jamee K. Moudud, Levy Institute Ro b e r t Pollin, University of Massachusetts Amherst “Securities Transactions Tax for U.S. Financial Markets” Steven M. Fazzari, Levy Institute; Washington University in St. Louis “Minsky and the Mainstream: Has Research Rediscovered Financial Keynesianism?” Pe r ry Mehrling, B a rn a rd College “Instability and the Distribution of Corporate Debt” 3 Ninth Annual Hyman P. Minsky Conference on Financial Str u c t u r e 4:45–5:00 P. M.BR E A K 5:00–6:30 P. M . SE S S I O N 4. IR R AT I O N A L EX U B E R A N C E Moderator: L. Randall Wra y , Levy Institute Ro b e r t J. Barbera, Hoenig & Co. “The Federal Reserve Goes Global” Frank A. J. Ven e ro s o , Ve n e roso Associates, an d Ro b e r t W. Paren t e a u , D resdner RCM Global Investors “I r rational Exuberance: A Minsky Model of Financial Instability with an Equity Market and Adaptive Expectations Behavior” 6:30 P. M . RE C E P T I O N A N D DI N N E R Speaker: David A. Levy, Vice Chairman and Director of Forecasting, Levy Institute “Nothing Is Inevitable, But If It Looks Like Rain, Bring Your Umbrella” TH U R S D AY, AP R I L 2 2 9:00–9:30 A.M. BR E A K FA S T 9:30–11:30 A.M. SE S S I O N 5. IN T E R N AT I O N A L IN S T I T U T I O N A L RE S T R U C T U R I N G Moderator: Walter M. Cadette, Levy Institute Thomas I. Palley, A F L - C I O “I n t e r national Finance and Problems of Capital Account Governa n c e ” An d r ew Cornf o r d, United Nations Conference on Trade and Development “Regulation and Supervision in the New Financial Arch i t e c t u re ” La w r ence R. Uhlick, Institute of International Bankers “Banking and Regulatory Supervision in Ter ms of the Global Financial Crisis” 1 1 : 30–11:45 A.M.BR E A K 11:45 A.M.–1:00 P. M . SP E A K E R The Honorable Laurence H. Meyer, M e m b e r, Board of Govern o r s , Federal Reserve System “Lessons from the Asian Crisis: A Central Banker’s Perspective” 1:00–2:30 P. M . LU N C H E O N 4 The Jerome Levy Economics Institute of Bard College 2:30–5:00 P. M . SE S S I O N 6. TH E FI N A N C I A L IN S TA B I L I T Y HY P O T H E S I S Moderator: L. Randall Wra y , Levy Institute Pi e r o Ferri , University of Berg a m o “Political Economy of Hyman P. Minsky” Paul Davidson, University of Te n n e s s e e “The Role of Financial Markets: Efficiency versus Liquidity and the Financial Fragility Hypothesis” H. Peter Gray, Rutgers University “The Minsky Theorem in a World of Integrated Financial Markets” Stephen Rousseas, Vassar College “M i n s k y ’ s Optimism about ‘It’ Not Happening Again” 5:00–6:30 P.
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