L. Randall Wray, one of economist Hyman Minsky's students, and one of academics behind the development of Modern Monetary Theory (MMT) provides us with an introduction to Minsky's thought in "Why Minsky Matters: An Introduction to the Work of a Maverick Economist." As the title suggests, it is not an attempt to explain the details of the evolution of Minsky's theories over his career, rather it is an attempt to relate his theory to contemporary events. The book is aimed at those who are unfamiliar with his work, and "post-Keynesian" economics in general. (I am using "post-Keynesian" here as a wide term; Minsky would probably not fit within a narrower definition of "post-Keynesian".)Bond Economics
Book Review: Why Minsky Matters (Wray)
Brian Romanchuk
6 comments:
My comment left on Brian's blog:
"Wray notes the apparent contradictions of a "radical" economist who echoed Ronald Reagan's criticism of the welfare state. For example, the big idea at the moment amongst the establishment "Keynesians" (such as Krugman, DeLong, and Summers) is that the United States should ramp up infrastructure spending -- exactly the policy description of the Democrats of the 1960s (and which failed, for reasons Minsky diagnosed at the time)."
1) Minsky was a conservative capitalist, not a radical, not a socialist. The fact that MMTer's view Minsky as a "radical" or "socialist" says a lot about the politics of MMT.
2) LBJ's Great Society did not "fail." Inequality and poverty fell to their lowest levels ever while inflation remained low. Minsky's conservative reading of the situation was 100% wrong. LBJ did not "fail" because of domestic spending, he failed because of the unpopular Vietnam war. Nixon was elected on the claim that he had a secret plan to end the war. Then OPEC came along and raised the price of oil.
Ultimately the New Deal social contract was dismantled not because it failed, but because the USSR failed, removing the threat of a communist revolt that had birthed the social contract in the first place. Keynesian economics was discredited because it had no solution to OPEC-induced inflation. Neither did the Thatcherites or the Reaganites (or Minsky), but North Sea oil conveniently appeared on the scene and the Sauds ramped up production to replace Iranian oil, making it appear at the time as if Neoliberal policies were working.
Agree that Minsky deserves credit for popularizing the notion that private debt cycles have a destabilizing effect on the economy.
Good points, Dan.
Very often inference to best explanation is based on a framework that determines the outcome based on ideological priors.
1) He was reformer, which yes, means that he was interested in preserving capitalism, but in a more humane fashion. He described himself as a "radical" (according to Wray), I should have noted that as "self-described radical". I realize that many on the modern left may dislike a reformist stance, but the modern left has not had a track record of success in recent decades. The last successful reforms that tamed capitalism were put in place by political realists.
2) I implied that the infrastructure spending failed (to achieve what was wanted), not the "Great Society". The book discussed the results of the Great Society programmes (which may be what you are referring to), but I did not cover that in the review. My understanding is that poverty amongst the elderly was reduced, but poverty reduction amongst the working age population was a mixed bag. Taking the long view, the welfare state programmes for the working age population were much less successful than the government old age support programmes, as they were politically unsustainable. Old age support was "fair", as it appears that people paid for it themselves with source deductions. Providing jobs, not welfare, has at least a chance of appearing "fair", and hence could be politically sustainable as well.
@Brian, America's Gini coefficient reached its lowest point ever in 1968. Minsky ignored that and instead tried to claim that inequality had worsened in the post WWII era based on cherry picking some data showing that union wages went up more than non-union wages, as if inequality were driven by unions rather than by the 1%! It was hack economics, obviously motivated by Minsky's conservative political agenda.
I understand the MMT/Minsky claim that transfer programs are not politically sustainable, but their claim is unsubstantiated and most of them (with the notable exception of Tom Hickey) lack a good grasp of history or politics.
Bottom line: if a living wage ELR is so gosh-darned politically viable in the US, how come they've never been able to make it happen? Huh? There was a big political fight to pass a JG in 1946, the JG side lost because the business interests opposed it exactly as Michal Kalecki predicted they would. Kalecki, with his Marxist tendency to view politics through the lens of class conflict, understood real world politics. Minsky did not.
None of us truly know what kinds of policies are politically sustainable in an informed democracy because we have never had an informed democracy. The U.S. and much of Europe are brainwashed oligarchies with fake elections. But .... we can observe the few countries that come close to being informed democracies -- like Iceland, Switzerland, or possibly Denmark. They have generous transfer programs *AND* high labor force participation rates. Those 2 things are not mutually exclusive, contrary to the Minsky mindset.
I appreciate that you were merely reviewing the book, not writing the book, but I had to roll my eyes at the description of Minsky as a "radical." :)
Dan: Minsky was a conservative capitalist, not a radical, not a socialist. The fact that MMTer's view Minsky as a "radical" or "socialist" says a lot about the politics of MMT.
Minsky (& Lerner for that matter) viewed himself as a socialist, and both came from a socialist background. Viewing him as a conservative capitalist says much more about the prejudices and desires of the viewers than about Minsky.
I understand the MMT/Minsky claim that transfer programs are not politically sustainable,
Hard to agree, because that is not the MMT/ Minsky / common sense objection. Badly designed "welfare" "transfer" programs aren't politically sustainable because they are not economically sustainable. The moronic UBI / BIG is the exemplar of bad design. And it's NOT because people need to see other people working. It is because they. can't. work. in. the. real. world. In one word - inflation. A JG is disinflationary and instantly provides the human right of full employment. Focusing on "welfare" instead of the right to full employment is the way to destroy a welfare state. It took decades to destroy the postwar era that way, but it was a (partial) success. It is not that the JG or Social Security appears fair that makes them viable and important, but that they are fair. The focus on appearances and evasion of argument about reality is curious.
if a living wage ELR is so gosh-darned politically viable in the US, how come they've never been able to make it happen?
1860: If abolishing slavery is so gosh-darned politically viable, how come the abolitionists - who had been calling slavery unnatural for millennia - have never been able to make it happen in the US? In any case, the New Deal Jobs programs were far to close to the living wage ELR for the capitalists' comfort. So it did happen.
Minsky & Kalecki & Marx & Keynes & Lerner etc did support full employment, a JG essentially. They & the capitalists and few others understood that capitalism + JG is no longer "capitalism" the way socialists criticize capitalism. It is not a mere "reform". Saying that the 1946 whittling down of the Full Employment Act proves Minsky didn't understand politics makes little sense. Sometimes the good guys - e.g. abolitionists lose. Doesn't make them stupid or politically naive or not the good guys.
Matt Bruenig's blog linked to expresses the Minsky/MMT mindset - which he calls "social democratic" as opposed to "liberal" - rather than opposing it. So I am glad that prejudice against a particular messenger doesn't entirely prevent reception of the message.
Looking at wage inequality, rather than the breakdown in income between capital and labour, makes sense if you want to see what the effects of pump-priming are on the labour market. That is exactly what Minsky said he was analyzing, even if it's not what you want to analyze. He also analysed the effects of an increased profit share, and he stated the problems with too high profits. High profits are unlikely to be inflationary, as the current environment shows. Although 1968 might have been a good year economically, the inflation spiral of the 1970s took off shortly thereafter. That inflation was politically toxic for the welfare state.
I agree that there is no political coalition to push for a Job Guarantee now. The rump welfare state that exists seems to make the programme look redundant. in the United States, given the politics of the Republican Party, I cannot see any form of reform being implemented. But if a coalition behind it formed, the programme at least has a chance of surviving. Something like the Universal a Basic Income, the darling idea of the modern left (and a Milton Friedman proposal) would survive about 4 years, and then the tax cut process would whittle down the amounts to be nothing more than a joke. (Which is probably why most conservatives supported the negative income tax.)
I live in a suburb of Montreal that has about the same population of Iceland. I am sure we could have a pretty wonderful welfare state set up in our little neighbourhood. But that does not tell us about what is going to happen with a sprawling country with large pre-existing disparities, like Canada or the United States as a whole.
Finally, if you argue that the elections are fake, that is not a sign that you expect to win one any time soon. The existing welfare state was built by politicians, elected in those elections, in a political environment which was far less democratic than the present.
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