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

Andrea Terzi — Europe Must Escape A Savings Trap, Not A Liquidity Trap

A better explanation for the prolonged stagnation in Europe puts at the center of the problem European fiscal policy aimed at reducing public debt. Although there is a growing literature on this, it is not immediately obvious why cutting public debt should harm growth and jobs. In the 1980s, when fiscal retrenchment became popular as a tool to reduce public borrowing, Josef Steindl explained the situation brilliantly. This, in a nutshell, is Steindl’s argument applied to the Eurozone: 

1) In every monetary economy there is a demand for savings.
2) For every euro saved, there must be a euro of debt in the system.
3) When some are attempting to increase their savings while others are attempting to deleverage and reduce debt, an inevitable inconsistency develops that drives the economy into a recession.
4) The public purpose of government policy should be that of providing the economy with sufficient funding to make the volume of debt coherent with the demand for savings.
5) This policy tool does not yet exist in the Eurozone. 

There was no inconsistency in Europe between savings and debt until 2006, as long as the desired savings of some matched the desired indebtedness of others. When private debt became unsustainable, however, an accounting counterpart of Europeans’ savings evaporated, domestic demand collapsed, and unemployment rose sharply. Initially (2008-2009), public debt automatically took the place of private debt. But, when government deficits exceeded official ceilings and full austerity began, a rising demand for savings and a falling demand for private and public indebtedness were forced to collide. 

When people feel they cannot save enough while at the same time private and public debt is being cut, a recession and its consequent huge waste of human and material resources simply cannot be avoided.

Social Europe Journal

Europe Must Escape A Savings Trap, Not A Liquidity Trap

Andrea Terzi | Professor of Economics at Franklin College, Lugano, Switzerland