Minsky Meets Kapp: A Post-Keynesian Institutionalist Approach to Addressing Climate Change

Abstract

Post-Keynesian institutional economists have long had much to say about addressing macroeconomic instability, but much less about environmental sustainability. To suggest a way forward on environmental matters, this article outlines a post-Keynesian institutionalist (PKI) approach to addressing climate change. That approach builds on Hyman Minsky’s notion of the need for institutions and public policies to contain economic instability, integrating it with insight from K. William Kapp on social costs and environmental disruption as well as with more recent PKI research on what Minsky called money-manager capitalism. The article applies the PKI approach to the problem of global warming, identifying and briefly considering some near-term and longer-term policy strategies and institutional changes that could restrain climate change, enabling us to minimize further ecological damage, restore the environment, and improve human well-being.

Keywords:

• Hyman Minsky
• K. William Kapp
• post-Keynesian institutionalism
• containing mechanisms
• climate change

JEL Classification Codes:

• B52
• Q54
• Q58

Notes

1 The conclusion I summarize above is what Ferri and Minsky (1992) call their “anti-laissez faire” and “limitation on performance” theorems. For an article that reaches similar conclusions—and in the process describes institutions and action by public authorities as “the equivalent of circuit breakers” that stop incipient economic crises—see Delli Gatti, Gallegati, and Minsky (1996, 397).

2 While Kapp often focused on social costs arising from private enterprise, he also recognized and gave attention to social costs arising from the public sector. This is hinted at in Kapp (1977) but discussed directly in Kapp (1969).

3 For example, on the tendency toward environmental disruption, Kapp (1977, 532–533) writes: “[e]ven if an individual firm wanted . . . to consider the negative environmental effects of its products and its residuals in its allocation decisions, it could do so [in all but exceptional cases] only at the price of reducing its own relative competitive position and its earning capacity.”

4 Since maximization of shareholder value is also at the heart of what many call financialization, a paper by Jacob Assa (2020) dovetails with our PKI perspective by exploring ways that financialization exacerbates climate change, such as by interfering with the U.S. solar energy industry’s ability to provide climate-friendly consumer products and by imposing changes on the agricultural industry that have increased market risk and reduced resilience of farming in many nations.

5 Nationally determined contributions to controlling greenhouse gas emissions are not sufficient to keep global warming under the 1.5 °C threshold as of this writing (November 27, 2022), according to the Climate Action Tracker (2022). Many people hoped that nations meeting at the most recent United Nations Climate Change Conference (held in Egypt in late 2022) would agree to set more ambitious emissions-cutting targets, but that did not happen. At the conference, rich nations agreed to create a fund to compensate poorer nations for damage and losses caused by climate change, but the final conference declaration contains elements that may have actually weakened the international commitment to containing global warming (McGrath 2022).

6 Some criticize Pollin’s plan for “saving capitalism” and argue that “ending capitalism must be a high priorty for the environmental movement,” but Chomsky and Pollin (2020, 145) respond that dismantling capitalism “is impossible within the time frame necessary for taking urgent action.”

7 Pollin doesn’t discuss the matter, but the nation’s Cooperative Extension System, which originated to meet the needs of the agricultural sector, provides a ready federal-state-local network that could play an active role in fostering energy efficiency and renewable energy initiatives—as could the nation’s Manufacturing Extension Partnership network. In fact, Cooperative Extension, at least in New York State, initiated consumer- and producer-oriented energy-saving projects decades ago in response to the energy crisis of the 1970s (albeit with very limited funds).

8 As part of transition support, a job guarantee—long advocated by institutionalists and post-Keynesians—could link employment stabilization with the drive toward ecological sustainability.

9 Pollin also outlines how to fund his entire proposal (see Chomsky and Pollin 2020, 155–157).

10 Author’s calculation, based on Bertrand (2022) and Jay (2022).

11 Consistent with Kapp’s skeptical view of market-based solutions are widespread reports that carbon offset systems are often little more than a scam (for a balanced discussion, see Irfan 2020).

12 In eco-industrial parks, enterprises are linked via interconnected streams of production, waste, and recovery. Also, some circular economy elements overlap with Green New Deal proposals, such as substitution of renewable inputs for fossil fuels, and could be implemented in the near term. On the circular economy, including eco-industrial parks, see Whalen and Whalen (2020).

Additional information

Notes on contributors

Charles J. Whalen

Charles J. Whalen is a research fellow at the Baldy Center for Law and Social Policy, University at Buffalo. This article was prepared as a paper delivered at the annual meeting of the Association for Evolutionary Economics, January 8, 2023. It builds on the author’s essay “Toward Real Sustainability,” which appears in his edited volume, A Modern Guide to Post-Keynesian Institutional Economics (Edward Elgar, 2022). The author thanks Linda Whalen for helpful comments.