Hadi Al-Wakil

This essay aims to examine three macroeconomic paradoxes and their application to COVID19-related economic developments. First, it is important to outline the economic implications of the pandemic particularly focusing on the short and medium term in order to grasp the most relevant macroeconomic paradoxes. Subsequently, the essay is subdivided into an analysis of the following macroeconomic paradoxes: Paradox of Thrift, Paradox of Cost, and the Paradox of Banking Refusal. The essay will also discuss policies that may be appropriate in addressing these paradoxes.

The financial instability hypothesis (FIH) was developed by Hyman Minsky in the 80s and early 90s but only gained strong popularity in light of the global financial crisis (GFC) of 2008. The hypothesis is essentially a claim that the financial systems of developed nations are fragile and unstable, where prolonged periods of economic booms will result in a collapse of the financial sector. Among proposals by others, Minsky continuously advocated for policies to deal with these conditions, however, such policies were largely ignored until recently. This essay will analyse and apply the FIH, examine policy recommendations to reduce financial fragility within the financial sector and also outline key shortcomings of Minsky’s hypothesis.