Why Aren’t We Talking More About Minsky Today?
On the title, “A Minsky Moment: Easy Come Easy Go” sounded good too. But then I thought it was too cheeky for a serious subject matter.
Prompted by an excellent article on the ECB monetary policy and its potential for financial instability (“The Eurozone’s Minsky Conundrum,” by Daniel Gros of Project Syndicate), I wondered why we don’t hear more from the press or the economists or whomever on what Hyman Minsky said several decades ago regarding the evolution of macro financial phenomena. For that matter, it’s a mystery to me that we seldom speak of Keynes’ insights on financial markets, swamped as we are by his far more politically digestible thoughts on the management of fiscal policy.
Minsky’s “Financial Instability Hypothesis” is a short and readable paper with counter-intuitive warnings against all we have been raised to like in an economy. This is because of one key aspect of his theory: financial crises are the result of “excess” stability in economic systems and so they are endogenous to them (no rogue bankers, unpredictable scandals, single mega event or unforeseen meteorites needed). The longer an economy grows in a consistent and stable manner, the likelier it is that at some point in the future it will develop a financial crisis. The right policy mix can help prevent this outcome but without being flippant, who would realistically believe in that after witnessing the build-up towards the last crisis in 2007-2009?
If stability is “bad”, what can we do about it? Probably not much, as the answer lies partially in becoming more responsible for the future of our country and ultimately our world, and in making the least damaging decisions. History tells me this is unlikely to happen any time soon; we are and remain fundamentally animals (please no hassling if you are an animal lover). Nobody likes pain; for avoiding a milder annoyance today we bequeath mega-issues to future generations by “kicking the can down the road”. Evergreen/GaveKal put it wonderfully, with a slightly different spin, in a piece published last month: trying to fix smaller recurring problems can lead to less frequent but far more damaging catastrophes.
On a side-note, getting out of a crisis, once it has developed, is really not easy. We all probably suspect that, though you would not think the message was passed on to stock investors: they have become the unwitting foot soldiers of the Monetary Policy Army. The message may have not reached even the people in charge of bringing Europe back to life if Mr. Gros is right.
It should be clear now why we don’t hear more about Minsky and his thinking. Aside from it being “no news”, it puts the “blame” for big unpleasant financial events squarely on human behavioral traits. And that’s no good for us: if we get accidentally caught in the rain it’s the weatherman’s fault, right?
Photo source: http://www.bbc.com/news/magazine-26680993.