[R-G] [BillTottenWeblog] H P Minsky, 77, Economist Who Decoded Lending Trends

[Bill Totten]

by Louis Uchitelle

New York Times (October 26 1996)


Hyman P Minsky, an economist and professor who explained, in
path-breaking research, how lending patterns and mood swings can push an
economy into speculative booms or steep declines, died on Thursday at
Northern Dutchess Hospital in Rhinebeck, New York. He was 77 and lived
in Rhinebeck.

He died of pancreatic cancer, his family said.

For the last six years, Professor Minsky was Distinguished Scholar at
the Jerome Levy Economics Institute of Bard College, an independent
institute on the Annandale-on-Hudson, New York, campus, where he had
continued his research on debt and the economy.

One of his final papers argued that big industrial economies like that
of the United States need $2 trillion or $3 trillion in national debt so
cautious lenders who want guarantees of repayment can achieve this by
buying the Government's very safe Treasury bills and bonds. Without such
opportunity, he said, the Social Security Administration would lack a
safe place to invest the payroll taxes of working Americans until they
are paid out in pensions.

Mr Minsky was sometimes described as a radical Keynesian whose research
nevertheless endeared him to Wall Street.

"He offered very good insights in the 1960s and 1970s when linkages
between the financial markets and the economy were not as well
understood as they are now", said Henry Kaufman, a Wall Street money
manager and economist. "He showed us that financial markets could move
frequently to excess. And he underscored the importance of the Federal
Reserve as a lender of last resort".

Mr Minsky's best-known work came in the late 1960s and early 1970s while
he was a professor at the University of California at Berkeley and then
Washington University in St Louis. John Maynard Keynes, the British
economist, had written about unstable financial markets, but Mr Minsky
was the first to explain how this instability developed and interacted
with the economy. In doing so he incorporated findings of Irving Fisher
and other earlier economists.

Basically, Mr Minsky found that in prosperous times, when corporate cash
flow rises beyond what is needed to pay off debt, a speculative euphoria
develops and soon lending gets beyond what the borrowers can pay off
from their incoming revenues. That produces a crisis. There is a
pull-back in lending, even to companies that can afford the loans, and
the economy contracts.

"A fundamental characteristic of our economy", Mr Minsky wrote in 1974,
"is that the financial system swings between robustness and fragility
and these swings are an integral part of the process that generates
business cycles".

Disagreeing with many mainstream economists, he argued that these
swings, and the booms and busts that can accompany them, are inevitable
in a free market economy, unless Government steps in to control them,
through regulation, central bank action and other tools that in fact
came into existence in response to the Depression. He opposed the
deregulation that characterized the 1980s.

It was at Berkeley that seminars attended by Bank of America executives
helped him to develop his theories about lending and economic activity,
views he laid out in two books: John Maynard Keynes (Columbia University
Press, 1975) and Stabilizing an Unstable Economy (Yale University Press,
1986).

Hyman Philip Minsky, who was born in Chicago, graduated from George
Washington High School in upper Manhattan. He received a bachelor's
degree in mathematics at the University of Chicago in 1941, but
influenced by Henry Simon, a revered economist, he shifted fields and
received a doctorate in economics at Harvard in 1954, specializing in
finance.

Mr Minsky is survived by his wife, Esther, a son, Alan, and a daughter,
Diana, all of Rhinebeck.

Copyright 2008 The New York Times Company

http://query.nytimes.com/gst/fullpage.html?res=990CEEDB1F30F935A15753C1A960958260


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