1/10
I just read – a little late – this very good essay by Yakov Feygin (@BuddyYakov) in memory of Janos Kornai, who died last month. Most people when they think of Kornai think about hard and soft budget constraints, just like most...
building-a-ruin.ghost.io/in-memory-of-j…
I just read – a little late – this very good essay by Yakov Feygin (@BuddyYakov) in memory of Janos Kornai, who died last month. Most people when they think of Kornai think about hard and soft budget constraints, just like most...
building-a-ruin.ghost.io/in-memory-of-j…
2/10
people think of the financial instability hypothesis when they think of Hyman Minsky, but what strikes me as most important about Minsky and Kornai is something they seemed to have had in common: an extremely nuanced understanding...
people think of the financial instability hypothesis when they think of Hyman Minsky, but what strikes me as most important about Minsky and Kornai is something they seemed to have had in common: an extremely nuanced understanding...
3/10
of an economy as a system of institutions that embed self-reinforcing and self-dissipating mechanisms of various strengths and which, under certain conditions, can create deep and systematic distortions in their economic behaviors.
of an economy as a system of institutions that embed self-reinforcing and self-dissipating mechanisms of various strengths and which, under certain conditions, can create deep and systematic distortions in their economic behaviors.
4/10
“Kornai argued that we should approach the economy as a set of feedback loops,” Feygin points out, “which essentially were set by institutions.” Similarly Minsky argued that all economic institutions – individual households to global trading blocs – are effectively “banks”.
“Kornai argued that we should approach the economy as a set of feedback loops,” Feygin points out, “which essentially were set by institutions.” Similarly Minsky argued that all economic institutions – individual households to global trading blocs – are effectively “banks”.
5/10
As a bank each has its own balance sheet, and it is the ways in which assets and liabilities on each balance sheet are matched (or mismatched) for each individual entity and across all economic entities that largely determine the overall behavior of the economy.
As a bank each has its own balance sheet, and it is the ways in which assets and liabilities on each balance sheet are matched (or mismatched) for each individual entity and across all economic entities that largely determine the overall behavior of the economy.
6/10
For Kornai and Minsky, in other words, economic imbalances or soaring debt aren't accidental, or the result of poor planning, or caused by "bad" agents, but rather are embedded in the structure of economic institutions.
For Kornai and Minsky, in other words, economic imbalances or soaring debt aren't accidental, or the result of poor planning, or caused by "bad" agents, but rather are embedded in the structure of economic institutions.
7/10
As a result both Kornai and Minsky lead us away from classical economics towards an institutional economics, or political economy, in which we must recognize explicitly the institutional constraints that push that economy towards specific types of imbalances.
As a result both Kornai and Minsky lead us away from classical economics towards an institutional economics, or political economy, in which we must recognize explicitly the institutional constraints that push that economy towards specific types of imbalances.
8/10
In my PKU seminar this week, for example, we discussed why American banks in the 2000s and Chinese property developers in the past decade engaged in such economically destructive behavior. It is easy to blame greed, but there were deeper reasons that drove this behavior.
In my PKU seminar this week, for example, we discussed why American banks in the 2000s and Chinese property developers in the past decade engaged in such economically destructive behavior. It is easy to blame greed, but there were deeper reasons that drove this behavior.
9/10
Among other things this makes it meaningless to discuss how an economy “must” or "can" rebalance towards a more stable or sustainable equilibrium without recognizing the institutional changes that must also take place.
Among other things this makes it meaningless to discuss how an economy “must” or "can" rebalance towards a more stable or sustainable equilibrium without recognizing the institutional changes that must also take place.
10/10
As an aside it is probably no coincidence that another of my favorite economists, Albert Hirschman, had a very similar institutionalist approach, even if – perhaps because he distrusted systematizing – he didn’t lay it out it as systematically as Minsky and Kornai did.
As an aside it is probably no coincidence that another of my favorite economists, Albert Hirschman, had a very similar institutionalist approach, even if – perhaps because he distrusted systematizing – he didn’t lay it out it as systematically as Minsky and Kornai did.
I've already mentioned @M_C_Klein's piece on Kornai before, but for those who are interested, I'll recommend it again.
theovershoot.co/p/kornai-keyne…
theovershoot.co/p/kornai-keyne…
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