Thursday, April 25, 2019

Brian Romanchuk — Minsky Versus Steindl Debt Dynamics?

In Marc Lavoie's Post-Keynesian Economics: New Foundations, he has an interesting discussion in Section 6.10.4, which is labelled "Minsky or Steindl Debt Dynamics?" The Minsky dynamics are the well-known Financial Instability Hypothesis (link to primer), while the Steindl dynamics refers to the discussion in Maturity and Stagnation in American Capitalism by Josef Steindl. Lavoie's discussion raises some issues with the limitations of aggregated analysis in this context. This is a brief comment on this topic.…
In summary, we need to be cautious about putting too much emphasis on aggregate debt ratios as a shorthand for riskiness of borrowing.
Important for the topic itself but also as a demo of how care must be taken to include all the factors that are relevant to analysis. 

What appears to be a simple issue may be complicated by additional factors, or it may even be complex and therefore affected by emergence that can't be foreseen from the data. In a word, uncertainty rather than risk that can be projected by probability and statistics. 

This pertains to non-ergodic systems like social systems, and to a lesser degree biological systems, as evolutionary theory shows. The more psychology enters into the picture, the less ergodic the system.

Rules of thumb are just that and no more — heuristic rather than analytic.

Bond Economics
Minsky Versus Steindl Debt Dynamics?
Brian Romanchuk

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