Hostname: page-component-78c5997874-fbnjt Total loading time: 0 Render date: 2024-11-06T08:04:50.712Z Has data issue: false hasContentIssue false
  • English
  • Français

Inherent Vice: Minsky, Markomata, and the tendency of markets to undermine themselves

Published online by Cambridge University Press:  16 July 2010

PHILIP MIROWSKI
PHILIP MIROWSKI*
Affiliation:
University of Notre Dame, Indiana, USA
*
*Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract:

Most current explanations of the crisis which began in 2007/8 tend to search for scapegoats, in the format of behavioral flaws. Their treatment of ‘risk’ is an important signpost to where such theories go awry. This paper suggests a structural theory of the crisis, informed by Institutionalist themes. We insist there is an alternative to a neoclassical macroeconomics, in the guise of possible alternative heterodox microfoundations for Minsky's account of economic crises, beyond the Kaleckian markup model. The sketch is based upon elevation of some formal notions of computational complexity to pride of place, and characterization of crises as a collapse of complexity. It is an attempt to portray a market system evolving to a point of ‘inherent vice’: an endogenous development which by its very nature, cannot be tamed through conventional insurance or risk models.

Type
Research Article
Information
Journal of Institutional Economics , Volume 6 , Issue 4 , December 2010 , pp. 415 - 443
Copyright
Copyright © The JOIE Foundation 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Akerlof, G. and Shiller, R. (2009), Animal Spirits: How Human Psychology Drives the Economy, Princeton, NJ: Princeton University Press.Google Scholar
Altman, D. (2009), ‘The Network’, New Republic, 9 October.Google Scholar
Anderson, J. (2007), ‘Debt-Market Paralysis Deepens Credit Drought’, New York Times, 7 October.Google Scholar
Arora, S. and Barak, B. (2009), Computational Complexity: A Modern Approach, New York: Cambridge University Press.CrossRefGoogle Scholar
Arora, S., Barak, B., Brunnermeier, M., and Ge, R. (2009), ‘Computational Complexity and Information Asymmetry in Financial Products’, Princeton Center for Computational Intractability, http://www.cs.princeton.edu/~ronggeGoogle Scholar
Barabasi, A. (2009), ‘Scale-Free Networks: A Decade and Beyond’, Science, 325: 412–413.CrossRefGoogle ScholarPubMed
Bieling, H. and Jager, J. (2009), ‘Global Finance and the European Economy: The Struggle over Banking Regulation’, in van Apeldoorn, B., Koupil, J., and Horn, L. (eds.), Contradictions and Limits of Neoliberal European Governance, London: Palgrave.Google Scholar
Bouchard, J.-P. (2009), ‘The (Unfortunate) Complexity of the Economy’, www.arXiv:0904.0805v1Google Scholar
Brock, W., Hommes, C., and Wagener, F. (2009), ‘More Hedging Instruments may Destabilize Markets’, Journal of Economic Dynamics and Control, 33: 1912–1928.CrossRefGoogle Scholar
Buchanan, M. (2008), ‘This Economy does not Compute’, New York Times, 1 October.Google Scholar
Buenza, D., Hardie, I., and MacKenzie, D. (2006), ‘Price is a Social Thing: Towards a Material Sociology of Arbitrage’, Organization Studies, 27: 721–745.CrossRefGoogle Scholar
Cassidy, J. (2008), ‘The Minsky Moment’, New Yorker, 4 February.Google Scholar
Cho, A. (2009), ‘Econophysics: Still Controversial after all these Tears’, Science, 325: 408, 24 July.CrossRefGoogle Scholar
Cogley, T. and Sargent, T. (2008), ‘The Market Price of Risk and the Equity Premium: A Legacy of the Great Depression?’, Journal of Monetary Economics, 55: 454–476.CrossRefGoogle Scholar
Colander, D. et al. (2009), ‘The Financial Crisis and the Systematic Failure of Academic Economics’, Critical Review: A Journal of Politics and Society, 21 (2): 249–267.CrossRefGoogle Scholar
Conitzer, V. and Sandholm, T. (2008), ‘New Complexity Results about Nash Equilibria’, Games and Economic Behavior, 63: 621–641.CrossRefGoogle Scholar
Cowan, G., Pines, D., and Meltzer, D. (eds.) (1994), Complexity: Metaphors, Models and Reality, Reading, MA: Addison-Wesley.Google Scholar
Cowen, T. (2008), ‘Three Trends and a Train Wreck’, New York Times, 17 October.Google Scholar
Crutchfield, J. (1994), ‘The Calculi of Emergence’, Physica D, 75: 11–54CrossRefGoogle Scholar
Davis, Martin, Sigal, R., and Weyuker, E. (1994), Computability, Complexity and Languages, San Diego: Morgan Kaufmann.Google Scholar
DeLong, J. B., Shleifer, A., Summers, L., and Waldmann, R. (1990), ‘Positive Feedback Strategies and Destabilizing Rational Speculation’, Journal of Finance, 45: 379–395.CrossRefGoogle Scholar
Durlauf, S. (2005), ‘Complexity and Empirical Economics’, Economic Journal, 115: F225–F243.CrossRefGoogle Scholar
Eichengreen, B. (2008), ‘Origins and Responses to the Crisis’, http://emlab.berkeley.edu/users/webfac/eichengreen/e183_sp07/origins_responses.pdfGoogle Scholar
Erturk, K. and Ozgur, G. (2009), ‘What is Minsky All About, Anyway?’, Real-World Economics Review, 50: 3–15.Google Scholar
Fortnow, L. (2009), ‘The Status of the P vs NP Problem’, Communications of the ACM, 52 (9):78–86.CrossRefGoogle Scholar
Frank, R. (2009), ‘Flaw in Free Markets: Humans’, New York Times, 14 September, Business section.Google Scholar
Gomes, C. and Selman, B. (2005), ‘Can Get Satisfaction’, Nature, 435: 751–752.CrossRefGoogle ScholarPubMed
Gonerup, O. and Crutchfield, J. (2006), ‘Hierarchical Self-Organization in the Finitary Process Soup’, www.arXiv:nlin/0603001v1Google Scholar
Gowan, P. (2009), ‘Crisis in the Heartland’, New Left Review, 55: 5–29.Google Scholar
Ito, M. (2004), Algebraic theory of Automata and Languages, Singapore: World Scientific.CrossRefGoogle Scholar
Johnson, R. (2009), Testimony before US House Committee on Financial Services, 7 October.Google Scholar
Johnson, S. (2009), ‘The Quiet Coup’, Atlantic, May.Google Scholar
Jones, S. (2009), ‘The Formula that Felled Wall Street’, Financial Times [London], 24 April.Google Scholar
Leijonhufvud, A. (2009), ‘Out of the Corridor: Keynes and the Crisis’, Cambridge Journal of Economics, 33: 741–757.CrossRefGoogle Scholar
Lohr, S. (2009), ‘Wall Street's Math Wizards Forgot a Few Variables’, New York Times, 13 September.Google Scholar
MacKenzie, D. (2009a), Material Markets, Oxford: Oxford University Press.Google Scholar
MacKenzie, D. (2009b), ‘The Credit Crisis as a Problem in the Sociology of Knowledge’, Edinburgh working paper www.sps.ed.ac.uk/_data/assets/pdf_file/0019/.../CrisisNew19.pdfGoogle Scholar
Marsili, M. (2008), ‘Eroding Market Stability by Proliferation of Financial Instruments’, www.arXiv and http://videolectures.net/ccss09_zurich/Google Scholar
Marsili, M. (2009), ‘Spiraling toward Market Completeness and Financial Instability’, www.arXiv.0906.1462v1Google Scholar
Minsky, H. (1977), ‘A Theory of Systemic Fragility’, in Altman, E. and Sametz, W. (eds.), Financial Crises, New York: Wiley.Google Scholar
Minsky, H. (1986), Stabilizing an Unstable Economy, New Haven: Yale University Press.Google Scholar
Mirowski, P. (1986), ‘Mathematical Formalism and Economic Explanation’, in Mirowski, P. (ed.), The Reconstruction of Economic Theory, Boston: Kluwer.Google Scholar
Mirowski, P. (2002), Machine Dreams: Economics Becomes a Cyborg Science, New York: Cambridge University Press.Google Scholar
Mirowski, P. (2006), ‘Twelve Theses on the History of Demand Theory in America’, in Hands, W. and Mirowski, P. (eds.), Agreement on Demand, supplement to History of Political Economy, 38: 343–379.Google Scholar
Mirowski, P. (2007), ‘Markets Come to Bits: Markomata and the Future of Computational Evolutionary Economics’, Journal of Economic Behavior and Organization, 63: 209–242.CrossRefGoogle Scholar
Muolo, P. and Padilla, M. (2008), Chain of Blame, New York: Wiley.Google Scholar
Newman, M. (2003), ‘The Structure and Function of Complex Networks’, SIAM Review, 45: 167–256.CrossRefGoogle Scholar
Paumgarten, N. (2009), ‘The Death of Kings’, New Yorker, May 18: 40.Google Scholar
Percus, A., Istrate, G., and Moore, C. (eds.) (2006), Computational Complexity and Statistical Physics, Oxford: Oxford University Press.Google Scholar
Phelps, S., McBurney, P., and Parsons, S. (2009), ‘Evolutionary Mechanism Design: A Review’, Autonomous Agent and Multi-agent Systems, 10.1007/S10458-009-9108-7Google Scholar
Posner, R. (2009), A Failure of Capitalism, Cambridge, MA: Harvard University Press.Google Scholar
Rickles, D. (2007), ‘Econophysics for Philosophers’, Studies in History and Philosophy of Modern Physics, 38: 948–978.CrossRefGoogle Scholar
Rickles, D. (2009), ‘Econophysics and the Complexity of Financial Markets’, in Collier, J. and Hooker, C. (eds.), Handbook of the Philosophy of Science, vol. 10, North Holland: Elsevier.Google Scholar
Rosser, J. B. (2008), ‘Econophysics and Economic Complexity’, Handbook of Research on Complexity, Edward Elgar.Google Scholar
Roubini, N. (2007), ‘Are We at the Peak of a Minsky Credit Cycle?’, www.rgemonitor.com/blog/roubini/208166 (last accessed 15 November 2009).Google Scholar
Rust, J. (1997), ‘Dealing with the Complexity of Economic Calculation’, paper delivered to Santa Fe Institute workshop on ‘Fundamental Limits to Knowledge in Economics’.Google Scholar
Scheffer, M. et al. (2009), ‘Early Warning Signals for Critical Transitions’, Nature, 461: 53–59.CrossRefGoogle ScholarPubMed
Schwartz, N. (2010), ‘Surge of Computer Selling after Apparent Glitch Sends Stocks Plunging’, New York Times, 6 May.Google Scholar
Seiffertt, J. and Wunsch, D. (2008), ‘Intelligence in Markets: Asset Pricing, Mechanism Design’, IEEE Computational Intelligence Magazine, November: 27–38.CrossRefGoogle Scholar
Shleifer, A. (2000), Inefficient Markets, New York: Oxford University Press.CrossRefGoogle Scholar
Story, L. and Thomas, L. (2009), ‘Tales from Lehman's Crypt’, New York Times, 13 September.Google Scholar
Tett, G. (2009), Fool's Gold, New York: Free Press.Google Scholar
US Securities and Exchange Commission (2010), ‘Preliminary Findings Regarding the Market Events of May 6, 2010’, www.sec.gov.Google Scholar
Wallison, P. (2009), ‘The True Origins of this Financial Crisis’, AEI Policy Paper, February, http://www.aei.org/docLib/04-23894%20OTI%20Wallison-g.pdfGoogle Scholar