Terry Jones’s documentary film Boom Bust Boom hits the cinemas this month. Using puppetry and talking heads (including mine), Jones is trying to popularise the work of Minsky, a US economist who died in 1996 but whose name has become for ever associated with the Lehman Brothers crash. Terrified analysts labelled it the “Minsky moment”.
Minsky’s genius was to show that financially complex capitalism is inherently unstable. Under conditions of stability, firms, banks and households will, over time, move from a position where their income pays off their debt, to one where it can only meet the interest payments on it. Finally, as instability rises, and central banks respond by expanding the supply of money, people end up borrowing just to pay back interest. The price of shares, homes and commodities rockets. Bust becomes inevitable.
This logical and coherent prediction was laughed at until it came true. Mainstream economics had convinced itself that capitalism tends towards equilibrium; and that any shocks must be external. It did so by reducing economic thought to the construction of abstract models, which perfectly describe the system 95% of the time, but break down during critical events....
For me, the most fundamental question in economics still concerns the 2008 crisis. Was this event the last in a series of shocks needed to allow a third technological revolution to take off? Or was it evidence that capitalism’s tendency to adapt and reshape in response to technology has stalled, or is even finished? That is the shadow we have to jump over in economics. Amid a mania for “new economic thinking”, it is what we need to think hardest about.The Guardian (UK)
To Move Beyond Boom and Bust, We Need a New Theory of Capitalism
Paul Mason | economics editor of Channel 4 News
