If Minsky is right, we are due for another "bubble" soon. (You've gotta love the lingo. Bubbles sound so non-threatening! What Minsky really should have called them are "burps," "pustules" or "abscesses").
Here's some snippets from an interesting article about a Post-Keynesian conference held at Buffalo State College:
Whalen...was among those arguing that an economy that no longer invests in the manufacture of tangible goods finds itself inventing other, much more mysterious things in which to invest and, hopefully, make money.
But, they said, exotic instruments such as securitized mortgage certificates and credit default swaps not only don't provide the industrial infrastructure -- and the jobs -- that the old manufacturing economy built up, they also aren't fully understood by those who create them, those who buy them and those who regulate them. Or those who would regulate them if the law hadn't been changed to allow those financial processes to operate beyond the reach of government.
Eric Tymoigne, an economics professor from Lewis and Clark College in Portland, Ore., argued that new financial instruments should be regulated in the same manner as medicines, tested and approved before they are allowed on the market.
"If the side effects kill you," Tymoigne said, "it probably wasn't a good innovation."
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Participants said the deregulatory trend ignores the lessons of history as well as the precepts of noted economists such as the namesake of their conference, John Maynard Keynes, and the post-Keynes scholar that most of them cite in their work, Hyman Minsky.
Both taught that governments need to be more aggressive than they usually are in regulating financial markets and in stepping in with such things as public works spending during economic downturns. But, while Keynes is often cited (wrongly, these scholars contend) as arguing that government intervention is needed only rarely, Minsky was more explicit in claiming that markets are inherently unstable and run the risk of frequent global crashes without outside supervision and, as needed, intervention.
Whalen lamented that it is only in times of financial crisis that government leaders, and even most mainstream economists, heed Keynes or even hear tell of Minsky. The rest of the time, they said, both government and academia hew to the belief, which he called seriously mistaken, that markets are rational and self-regulating.
Buffalo State professor William T. Ganley quoted 19th century journalist Charles McKay to make his point: "Men think in herds and go mad in herds. They only recover their senses slowly, and one by one."
Here's some snippets from an interesting article about a Post-Keynesian conference held at Buffalo State College:
Whalen...was among those arguing that an economy that no longer invests in the manufacture of tangible goods finds itself inventing other, much more mysterious things in which to invest and, hopefully, make money.
But, they said, exotic instruments such as securitized mortgage certificates and credit default swaps not only don't provide the industrial infrastructure -- and the jobs -- that the old manufacturing economy built up, they also aren't fully understood by those who create them, those who buy them and those who regulate them. Or those who would regulate them if the law hadn't been changed to allow those financial processes to operate beyond the reach of government.
Eric Tymoigne, an economics professor from Lewis and Clark College in Portland, Ore., argued that new financial instruments should be regulated in the same manner as medicines, tested and approved before they are allowed on the market.
"If the side effects kill you," Tymoigne said, "it probably wasn't a good innovation."
----------
Participants said the deregulatory trend ignores the lessons of history as well as the precepts of noted economists such as the namesake of their conference, John Maynard Keynes, and the post-Keynes scholar that most of them cite in their work, Hyman Minsky.
Both taught that governments need to be more aggressive than they usually are in regulating financial markets and in stepping in with such things as public works spending during economic downturns. But, while Keynes is often cited (wrongly, these scholars contend) as arguing that government intervention is needed only rarely, Minsky was more explicit in claiming that markets are inherently unstable and run the risk of frequent global crashes without outside supervision and, as needed, intervention.
Whalen lamented that it is only in times of financial crisis that government leaders, and even most mainstream economists, heed Keynes or even hear tell of Minsky. The rest of the time, they said, both government and academia hew to the belief, which he called seriously mistaken, that markets are rational and self-regulating.
Buffalo State professor William T. Ganley quoted 19th century journalist Charles McKay to make his point: "Men think in herds and go mad in herds. They only recover their senses slowly, and one by one."
1 comment:
Two sentences struck me as being especially pertinent and ignored by those who I've spoken with who try to blame the market free fall solely on the people who were foolish enough to acquire unaffordable mortgages. (Those people also ignore the bankers and mortgage brokers who were complicit in fraudulently marketing mortgages directly to those whom they knew couldn't afford them.)
I've heard seemingly intelligent businessmen & journalist say things such as, "These are sophisticated investors who knew the risks and what they were doing with these instruments."
From my observations working with the principal swaps trader in NYC, that is sheer garbage. Neither the buyers or the traders understood all the implications and risks of these instruments, and furthermore, the swaps were hidden from all corporate accounting (ergo, no accountability to shareholders). So, I completely agree with this statement: "But, they said, exotic instruments such as securitized mortgage certificates and credit default swaps not only don't provide the industrial infrastructure -- and the jobs -- that the old manufacturing economy built up, they also aren't fully understood by those who create them, those who buy them and those who regulate them."
In addition, all neoclassical economists (e.g., Alan Greenspan, and I fear, Ben Bernanke & Timothy Geithner, too), have founded their economics theories on this bogus "principle": people make rational decisions. Even economists at the Federal Reserve Bank with whom I work wink at that principle, in practice! It is a flagrantly insupportable metanarrative! So, another quote from your article also is this one: "The rest of the time, they said, both government and academia hew to the belief, which he called seriously mistaken, that markets are rational and self-regulating."
How could any market (comprised of people interacting and making [irrational and rational] subjective business decisions possibly be "rational and self-regulating" when the individual economic units [i.e., persons] are not rational and self-regulating????
Dangerous assumptions lead to these bubbles. In this regard, I see Christianity as unblinkingly, uncompromisingly grounded in the reality of the production of material or service goods, not in the hubris, unjust and unethical praxis of financial outlaws.
Thanks, Beth!
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