Tuesday, March 27, 2012

Randy Wray — Why Minsky Matters: Part One


Wray comments on the debate between Keen and Krugman over Minsky, and procedes to elucidate Minsky. Wray was a Phd student of Minsky and is regarded as an expert in Minsky's work. Minsky's work is an an essential building block of MMT macro, along with Godley and Lerner. Many people seem to associate MMT with the influence of Godley and Lerner while being largely unaware of Minsky's influence. It was Minsky who proposed a job guarantee, for example, although the MMT JG is substantially different from Minsky's.

I think it is fair to say that without understanding Minsky's contribution it is impossible to approach MMT as a macro theory, in that Minsky's contributions to understanding the role of money & banking, as well as finance (and financial instability in particular), are crucial elements in the development of MMT macro theory. Unfortunately, most of this work is in professional publications rather than on the blogs, so many people familiar with MMT chiefly through the blogs miss the important role of Minsky's contributions in MMT macro. Professor Wray sets out to correct that in this series that summarizes his previously published work.

Read it at Economonitor | Great Leap Forward
by L. Randall Wray | Professor of Economics, UMKC


Anonymous said...

The essay linked below contains a beautiful, condensed summary of the financial instability hypothesis, the defense of which is the key argument of Minsky's book, Stabilizing and Unstable Economy.


Minsky argues that a modern capitalist economy with a complex, innovative and profit-seeking banking system is inherently prone to financial instability. Instability is not some exogenous pathology foisted onto capitalist finance by bad and meddling government; it is an inherent dynamic tendency of modern capitalist finance that can only be combated through effective government.

Warren Mosler said...

I believe my statement:

'The private sector is necessarily pro cyclical.'

says much the same thing?

Warren Mosler

Warren Mosler said...

Also, MMT was created independently with 'Soft Currency Economics' and those references of Godley, Minsky, and Lerner and many others were subsequently discovered.

Tom Hickey said...

Warren: "''The private sector is necessarily pro cyclical.' says much the same thing?"

I would agree, Warren. Minsky-Wray flesh this out.

This also accounts for how government needs to be the counter-cyclical counterweight on the scale in order to balance pro-cyclical excess and subsequent correction, in order to keep the scale from tipping so far down that the economy suffers badly and a lot of people get hurt, including innocent bystanders.

Matt Franko said...

Good one: "He (Paul Krugman) starts by saying ”If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else…” Well, if he had actually read Minsky, he would understand that this is the description of a loan shark, not a bank."


Jonf said...

Warren, You should put your mandatory readings toghether in a book format. Soft Currency Economics is a mighty read all alone. I had to take that one a little at a time and I know I didn't get it all.