Tuesday, November 25, 2008

Minsky Rising?

KPC BFF Der-zoo sends this link, a paean to absent friends.

One friend in particular, Hyman "Hy" Minsky. Check the abstract:

Recently, national newspapers all over the world have suggested that we should reread John Maynard Keynes, and that Hyman P. Minsky provides a valuable framework for understanding the world in which we live. While rereading Keynes and discovering Minsky are noble goals, one should also remember the mistakes that were made in the past. The mainstream interpretation and implementation of Keynes's ideas have been very different from what Keynes proposed, and they have been reduced to simple "fiscal activism." This led to the 1950s and 1960s "Keynesian" era, during which fine-tuning was supposed to be a straightforward way to fix economic problems. We know today that this is not the case: just playing around with taxes and government expenditures will not do. On the contrary, problems may worsen. If one wants to get serious about Keynes and Minsky, one should understand that the theoretical and policy implications are far-reaching. This paper compares and contrasts Minsky's views of the capitalist system to the tenets of the New Consensus, and argues that there never has been any true Keynesian revolution. This is illustrated by studying the Roosevelt and Kennedy/Johnson eras, as well as Keynes's reaction to the former and Minsky's critique of the latter. Overall, it is argued that the theoretical framework and policy prescriptions of Irving Fisher, not Keynes, have been much more consistent with past and current government policies.

Some thoughts:

1. Minsky's "model" predicted 11 of the last 3 recessions.
2. Angus and I used to mimic what we called the "Minsky Curve." Let's just say it hangs down rather limply, and is only policy-exploitable in the EXTREMELY short run. Ten seconds, max.
3. From the abstract: "If one wants to get serious about Keynes and Minsky...."? I don't, actually.
4. There's a Cal State Fresno? Really? Are Cal States like Circle K's; you can just buy a franchise, and put it up on a vacant corner lot? Ah, I see it is also called Fresno State. Okay, THAT I have heard of.
5. From the abstract: "Just playing around with taxes and government expenditures will not do." Amen.
6. There is such a thing as a "Minsky moment,"* apparently. I had a class from Hy, in grad school. For me, "Minsky moments" were times when I thought he was actually going to lecture, and say something about economics. Minsky moments of that sort were EXTREMELY rare. But this is an interesting article; have to give ol' Hy some credit, I think.

*A Minsky moment is the point in a credit cycle or business cycle when investors have cash flow problems due to spiraling debt they have incurred in order to finance speculative investments. At this point, a major selloff begins due to the fact that no counterparty can be found to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse in market clearing asset prices and a sharp drop in market liquidity.

(Nod to Art)