Michael Roberts Blog: blogging from a marxist economist — Minsky and socialism

Minsky’s journey from socialism to stability for capitalist profitability comes about because he and the post-Keynesians deny and/or ignore Marx’s law of value, just as the ‘market socialists’, Lange and Lerner, did. The post-Keynesians and MMTers deny/ignore that profit comes from surplus value extracted by exploitation in the capitalist production process and it is this that is the driving force for investment and employment. They ignore the origin and role of profit, except as a residual of investment and consumer spending.Instead they all have a money fetish. With the money fetish, money replaces value, rather than representing it. They all see money (finance) as both causing crises and, also as solving them by creating value!

In my view, far from Minsky providing the “necessary ingredients to a to a rethinking of Marxian theory of capitalist dynamics and crises”, as Bellofiore argues, Minsky’s theory of crises, like all those emanating from the post-Keynesian think tank of the Levy Institute, falls well short of delivering a comprehensive causal explanation of regular and recurring booms and slumps in capitalist production. By limiting the searchlight of analysis to money, finance and debt, Minsky and the P-Ks ignore the exploitation of labour by capital (terms not even used). They fail to recognise that financial fragility and collapse are triggered by the recurring insufficiency of value creation in capitalist accumulation and production.

Moreover, by claiming that capitalism’s problem lies in the finance sector, the policy solutions offered are the regulation and control of that sector, rather than the replacement of the capitalist mode of production. Indeed, that is the very path that Minsky took: from his socialism and ‘’socialisation of investment’’ in the 1970s to ‘stabilising finance’ in the 1990s.

Michael Roberts Blog — blogging from a marxist economist
Minsky and socialism
Michael Roberts

Dirk Ehnts — Minsky in 1993 on the Non-Neutrality of Money

I have read an article from Hyman Minsky which is only 6 pages long but contains some major arguments of his thought. There are also some very nice quotes to take out of the text. The article was published in the FRBNY Quarterly Review issue of spring 1992 on pages 77-82. Minsky attacks equilibrium economics:

econoblog 101
Minsky in 1993 on the Non-Neutrality of Money
Dirk Ehnts | Lecturer at Bard College Berlin

Jan Kregel — Minskyan Reflections on the Ides of September

Good article on Minsky from an MMT understanding.

Multiplier Effect
Minskyan Reflections on the Ides of SeptemberJan Kregel | director of research at the Levy Economics Institute, director of the Levy Institute master’s program in economic theory and policy, head of the Institute’s Monetary Policy and Financial Structure program, and professor of development finance at Tallinn University of Technology

Tyler Durden — Minsky Cycle 2017: Where Are We Now

Over the weekend, DB's credit strategist Aleksandar Kocic discussed what Minsky Dynamics for the "New Normal" look like based on a matrix that charted the various progressions of Leverage vs Volatility, with four possible end states. However, since that graphic explanation proved too problematic for some, another Deutsche macro analyst, Alan Ruskin, released a far simpler representation of the current (and historical) Minsky cycle, which compartmentalizes the world's various assets in their 7 discrete states along the Minsky cycle (as defined in Charles Kindelberger's ‘Manias, Panics and Crashes – A History of Financial Crises’). These start with the 1) macro shock ‘displacement’, move to 2) ‘healthy expansion’, to 3) ‘leveraged driven gains’, to 4) ‘euphoria’, 5) ‘insider profit-taking’, 6) ‘liquidation and panic’ and onward and downward to 7) ‘revulsion and discredit.’

Where are we now?

Zero Hedge
Minsky Cycle 2017: Where Are We Now
Tyler Durden

Steve Roth — Why Tyler Cowen Doesn’t Understand the Economy: It’s the Debt, Stupid

It’s the debt, stupid = doing economics without balance sheets and awareness of finance.

It’s as if Irving Fisher and Hyman Minsky had never written.

Conventional economists seem to do their thinking without tethering it to the real world though finance as a source of funds and accounting as the record of what actually happens in market exchange. If economists are looking for microfoundations, this is where it is, rather than in "preferences," "expectations" and "confidence."

Asymptosis
Why Tyler Cowen Doesn’t Understand the Economy: It’s the Debt, Stupid

Steve Roth

Nick Johnson — In brief: the economics of Hyman Minsky

Like it says, short summary of Minsky's thought emphasizing the financial instability hypothesis. Although not stated in the post, Minsky also proposed a job guarantee. His connection with the development of MMT is through his student Randy Wray, who wrote the first book on MMT, Understanding Modern Money: The Key to Full Employment and Price Stability (1998).

The Political Economy of Development
In brief: the economics of Hyman Minsky
Nick Johnson

Lars P. Syll — Minsky matters!

Minsky explained what other economists, notably John Hicks, the originator of ISLM, got wrong about Keynes and missed the key points that Keynes was making as a consequence — cyclicality, the role of finance, and uncertainty.

Minsky observed that the "animal spirits" of which Keynes spoke were not just expectations, and certainly not completely rational expectations. Rather expectations are volatile and are driven across the financial cycle by fear and greed, with the stability provided by financial retrenchment in the trough giving way to instability toward the top owing to irrational exuberance in the Ponzi phase.

Lars P. Syll’s Blog
Minsky matters!
Lars P. Syll | Professor, Malmo University

Randy Wray — MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?

Randy replies to criticism that some of Minsky's views appear to be at odds with MMT. Randy's answer is nuanced.

New Economic Perspectives
MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?
L. Randall Wray | Professor of Economics, Bard College

The Economist — Minsky’s moment

Having grown up during the Depression, Minsky was minded to dwell on disaster. Over the years he came back to the same fundamental problem again and again. He wanted to understand why financial crises occurred. It was an unpopular focus. The dominant belief in the latter half of the 20th century was that markets were efficient. The prospect of a full-blown calamity in developed economies sounded far-fetched. There might be the occasional stockmarket bust or currency crash, but modern economies had, it seemed, vanquished their worst demons.

Against those certitudes, Minsky, an owlish man with a shock of grey hair, developed his “financial-instability hypothesis”. It is an examination of how long stretches of prosperity sow the seeds of the next crisis, an important lens for understanding the tumult of the past decade. But the history of the hypothesis itself is just as important. Its trajectory from the margins of academia to a subject of mainstream debate shows how the study of economics is adapting to a much-changed reality since the global financial crisis.…

The Economist
Minsky’s moment

Michael Stephens — Listen in on the Minsky Conference

Audio from the 25th Annual Minsky Conference will be broadcast live. Listen here beginning tomorrow at 9am.

Schedule is at link below.

Multiplier Effect

Listen in on the Minsky Conference
Michael Stephens

Why Minsky Matters and Boom Bust Boom

Victoria Bateman reviews Why Minsky Matters: An Introduction to the Work of a Maverick Economist, by L. Randall Wray

Book of the week: Economic instability is inevitable – what matters is our efforts to limit it, says Victoria Bateman

Times Higher Education
Why Minsky Matters: An Introduction to the Work of a Maverick Economist, by L. Randall Wray
Victoria Bateman, fellow and director of studies in economics, Gonville and Caius College, Cambridge

Gavin Kennedy — Why Adam Smith Matters When Reported Accurately

Gavin Kennedy schools Randy Wray in Adam Smith on the invisible hand metaphor.

Adam Smith's Lost Legacy

Why Adam Smith Matters When Reported Accurately

Gavin Kennedy | Professor Emeritus, Heriot Watt University

Edward Harrison — When market contagion occurs, this is how it will happen

I have been pretty sanguine about the markets and the US economy. Yes, the commodities complex is worsening, but that doesn’t mean this feeds through enough into other sectors to force the market down. And the real economy isn’t at stall speed yet either.We just aren’t there yet. Nevertheless, I have a general read on how this ends regarding credit cycle weakness, increased defaults, asset class contagion, falling markets, economic weakness, and recession. So let me sketch out for you the framework I’m using as a lot of the telltale signs of credit cycle weakness are already happening.

Now, to be clear, I am not calling a recession yet – far from it. After all, the Federal Reserve is raising interest rates, something that it does when the economy is doing relatively well. And while I don’t think the Fed necessarily gets it right, I don’t think they are that far off the mark. Yet, at the same time, the evidence is mounting that the credit cycle is pretty far along and that means asset class contagion and real economy weakness is not far behind.

Junk bonds and credit associated with the shale industry are now under pressure.

So how does this infect other markets? Whenever there is a system-wide panic, a large part of this is driven by people selling what they can, not what they must. So, what we need to – and eventually will see – is redemptions – mutual fund and hedge fund redemptions. And when people start to pull their money out of funds, that’s when previously uncorrelated assets become highly correlated.…

But inevitably you and some of your competitors will be forced to sell good assets too, not because you necessarily want to but because you must. And that’s where the contagion begins.…

Credit Writedowns
When market contagion occurs, this is how it will happen

Edward Harrison

Reuters — Edward Chancellor reviews Randy Wray's Why Minsky Matters

Forget the living canon of great economists – Paul Krugman, Joe Stiglitz, Larry Summers and the rest. Hyman Minsky was the only contemporary thinker to have predicted with uncanny precision the global financial crisis. This is no small achievement since Minsky died more than a decade before Lehman Brothers filed for bankruptcy. Minsky’s unorthodox vision of capitalism, with its emphasis on the central role of finance and the system’s inherent tendency to crash, was vindicated by the subprime crisis. 

In a new book, “Why Minsky Matters: An Introduction to the Work of a Maverick Economist,” L. Randall Wray suggests that he would have approved of policymakers’ initial response to the crisis precipitated by Lehman’s collapse in the fall of 2008. However, by now, Minsky would be fretting that another “Minsky moment” is not far away and pondering what lies ahead....

Reuters
Review: Another “Minsky moment” may be on the way
By Edward Chancellor

ht Michael Stephens at Multiplier Effect

Michael Stephens — “Why Minsky Matters” Now Available

Randy Wray's latest. Looks like a must-read for economists, political scientists, and policy-makers. Perhaps this will be many more people's introduction to MMT. Very moderately priced, too. It should be a a big seller.

Multiplier Effect
“Why Minsky Matters” Now Available
Michael Stephens


Publisher's blurb:

Why Minsky Matters:

An Introduction to the Work of a Maverick Economist

L. Randall Wray

Hardcover | 2015 | $27.95 | £19.95 | ISBN: 9780691159126
288 pp. | 5 1/2 x 8 1/2

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eBook | ISBN: 9781400873494 |
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Reviews | Table of Contents
Introduction[PDF]

Perhaps no economist was more vindicated by the global financial crisis than Hyman P. Minsky (1919–96). Although a handful of economists raised alarms as early as 2000, Minsky’s warnings began a half-century earlier, with writings that set out a compelling theory of financial instability. Yet even today he remains largely outside mainstream economics; few people have a good grasp of his writings, and fewer still understand their full importance. Why Minsky Matters makes the maverick economist’s critically valuable insights accessible to general readers for the first time. L. Randall Wray shows that by understanding Minsky we will not only see the next crisis coming but we might be able to act quickly enough to prevent it.

As Wray explains, Minsky’s most important idea is that "stability is destabilizing": to the degree that the economy achieves what looks to be robust and stable growth, it is setting up the conditions in which a crash becomes ever more likely. Before the financial crisis, mainstream economists pointed to much evidence that the economy was more stable, but their predictions were completely wrong because they disregarded Minsky’s insight. Wray also introduces Minsky’s significant work on money and banking, poverty and unemployment, and the evolution of capitalism, as well as his proposals for reforming the financial system and promoting economic stability.

A much-needed introduction to an economist whose ideas are more relevant than ever, Why Minsky Matters is essential reading for anyone who wants to understand why economic crises are becoming more frequent and severe—and what we can do about it.

L. Randall Wray is professor of economics at the University of Missouri, Kansas City, and senior scholar at the Levy Economics Institute of Bard College. He is the author of many books, including Modern Money Theory and Understanding Modern Money. He was a student and colleague of Hyman Minsky.

Reviews:

"An accessible introduction to the economist who saw the global financial crisis coming."--Bookseller Buyer’s Guide

Endorsements:

"Ever since the climax of the financial crisis in 2008–09, Hyman Minsky has become an iconic point of reference. Why Minsky Matters renders the authentic Minsky accessible to a wide readership for the first time. L. Randall Wray has a comprehensive grasp of Minsky’s thought, and the capacity to express it in a compact, highly readable fashion. This is a book of rare clarity, importance, and usefulness."--James K. Galbraith, author of The End of Normal: The Great Crisis and the Future of Growth

"Hyman Minsky is the most important economist since Keynes, yet it’s virtually impossible to find any books about him. Why Minsky Matters should be read not just by anyone who wants to understand Minsky, but anyone who wants to understand our economy. The reason, as L. Randall Wray makes obvious, is that Minsky does a better job of explaining the global financial crisis--and why it isn’t over yet--than anyone else. Everyone should read this book."--Michael Pettis, author of The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy
"Intelligent, accessible, and clear, Why Minsky Matters brings Minsky’s ideas to life and explains why they help us understand the world in which we live."--Steven M. Fazzari, coauthor of After the Great Recession

Table of Contents:
Preface vii
Introduction 1
1 Overview of Minsky’s Main Contributions 21
2 Where Did We Go Wrong? Macroeconomics and the Road Not Taken 47
3 Minsky’s Early Contributions: The Financial Instability Hypothesis 71
4 Minsky’s Views on Money and Banking 87
5 Minsky’s Approach to Poverty and Unemployment 109
6 Minsky and the Global Financial Crisis 137
7 Minsky and Financial Reform 163
8 Conclusion: Reforms to Promote Stability, Democracy, Security, and Equality 193
Notes 223
Further Reading 253
The Collected Writings of Hyman P. Minsky 257
Index 269

Jon Danielsson, Marcela Valenzuela, Ilknur Zer — Volatility, financial crises and Minsky's hypothesis

Does low volatility in financial markets mean that another financial crisis is more likely? And should we be worried when everything is OK? This column presents the first empirical results that find a strong validation of Minsky's hypothesis – obtained from 200 years of historical cross-sectional data – that low volatility increases the likelihood of future financial crisis by increasing risk-taking.

Perhaps the most significant thing about this study is that people are starting to look at Hyman Minsky and take him seriously.

While the common view maintains that volatility directly affects the probability of a crisis, this has been proven difficult to verify empirically.

In what we believe is the first study to do so, we find direct empirical evidence that the level of volatility is not a good indicator of crisis, but that unexpectedly high and low volatilities are.

This is directly in line with what is predicted by theory and provides a validation of Minsky's hypothesis – stability is destabilising.

Market volatility is of clear interest to policymakers, with the quote of chairwoman Yellen above just one example.

By documenting how volatility can affect the risk-taking behavior of economic agents and hence, the incidence of financial crises, policymakers and market participants alike would gain a valuable tool in understanding crises, tail events and systemic risk.

VOXEU
Volatility, financial crises and Minsky's hypothesis
Jon Danielsson, Marcela Valenzuela, Ilknur Zer

Andrew Lainton — How a Chinese Equity Black Monday Transmits to a Global Money Supply Collapse

Stock market bubbles are fulled on speculation – on what Guzman and Stiglitz (2015) call tellingly ‘pseudo wealth’. It is the collapse in that pseudo wealth that causes aggregate demand collapse in the wider economy.

Karl Marx called it "fictitious capital," which is the term that Michael Hudson uses for it now.

Lainton's analysis is based on Hyman Minsky's approach to banking and its relation to the economy.

Decisions, Decisions, Decisions
How a Chinese Equity Black Monday Transmits to a Global Money Supply Collapse
Andrew Lainton

Brian Romanchuk — The Debt Supercycle Versus Secular Stagnation

Kenneth Rogoff has been advancing theories that the current environment of disappointing growth rates is the result of a "debt supercycle", not "secular stagnation". He recently summarised his arguments within the article "Debt supercycle, not secular stagnation". Although would agree that some version of a "debt supercycle" theory is correct, I am unconvinced about Rogoff's description of the mechanisms. Meanwhile, I doubt that he will succeed in winning the argument - he is pushing against the unmoveable object that is the circular logic of the natural rate of interest.

Catching up with Minsky but still can't shake neoclassical assumptions.

Excellent simple summary.

Bond Economics
The Debt Supercycle Versus Secular Stagnation
Brian Romanchuk

Lars P. Syll — The Bernanke-Summers imbroglio

As no one interested in macroeconomics has failed to notice, Ben Bernanke is having a debate with Larry Summers on what’s behind the slow recovery of growth rates since the financial crisis of 2007.

To Bernanke it’s basically a question of a savings glut.

To Summers it’s basically a question of a secular decline in the level of investment.
To me the debate is actually a non-starter, since they both rely on a loanable funds theory and a Wicksellian notion of a “natural” rate of interest — ideas that have been known to be dead wrong for at least 80 years …

Lars P. Syll’s Blog
The Bernanke-Summers imbroglio
Lars P. Syll | Professor, Malmo University