Congratulations, John. You are being noticed.
John cites Minsky concerning financial instability being built into a credit system, so the conclusion that industrial capitalism involves a cycle of booms and busts based on overproduction and liquidation of unplanned inventory must be complemented by the conclusion that finance capital results in a cycle of booms and busts based on the credit cycle that revolve though hedge, speculative, and Ponzi stages.
John concludes that a capitalist monetary production economy is cyclical and that government does not have the power to prevent this.
Ultimately, I think we need to move beyond the impossible dream of preventing financial crises before they occur. Laws to prevent theft, fraud, intentionally misleading investors, and gambling with other people’s money or with an implicit guarantee (like Glass-Steagall) are prudent regulations. But they do not eliminate booms and busts. Booms and busts are normal behavior in markets, because the future is so hard to predict and people are so unpredictable.
In the long run, I think policy must focus on being more responsive to the booms and busts of the market by minimizing real world damage as problems occur. This means more firefighting — to prevent damagingly excessive unemployment or a deflationary spiral following a financial crisis. That may not be as clean and satisfying as making the problem go away altogether. But if the problem of financial crashes is inherent to financial markets — which it certainly appears to be — making it go away altogether is not an option.
MMT proponents would agree that business and financial cycles are not entirely preventable in a monetary production economy. However, they would also say that a lot more can be done to reduce the phenomenon through adoption of more optimal legal, financial, and economic policy. See, for instance, Warren Mosler's proposals for reform. MMT would also use functional finance and the MMT JG to ameliorate the conditions that lead to cyclical excess and also deal with the social and economic consequences of cyclical behavior.
Washington Center for Equitable Growth
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