We'll be looking at Minsky's theory of the cycle tomorrow, so it might be worth looking at some of the controversy modern economists are generating by trying to incorporate his insights into mainstream models.
"Though I applaud Krugman for being probably the first neoclassical economist to attempt to model Minsky after decades of ignoring him, the model itself embodies everything that is bad in neoclassical economics.
This reflect poorly, not so much Krugman—who has done the best he can with the neoclassical toolset to model what he thinks Minsky said—but on the toolset itself, which is utterly inappropriate for understanding the economy in which we actually live.
There is a pattern to neoclassical attempts to increase the realism of their models that is as predictable as sunrise—but nowhere near as beautiful. The author takes the core model—which cannot generate the real world phenomenon under discussion—and then adds some twist to the basic assumptions which, hey presto, generate the phenomenon in some highly stylized way. The mathematics (or geometry) of the twist is explicated, policy conclusions (if any) are then drawn, and the paper ends."
via “Like a Dog Walking on its Hind Legs”: Krugman’s Minsky Model « Real-World Economics Review Blog.