Actually existing Minsky

So I’m actually reading Hyman Minsky’s magnum opus, here in Seoul. (Yay Amazon Kindle; boo its habit of crashing every hour or so, and having to be reset. Are other people having that problem?) And I have to say that the Platonic ideal of Minsky is a lot better than the reality.

There’s a deep insight in there; both the concept of financial fragility and his insight, way ahead of anyone else, that as the memory of the Depression faded the system was in fact becoming more fragile. But that insight takes up part of Chapter 9. The rest is a long slog through turgid writing, Kaleckian income distribution theory (which I don’t think has anything to do with the fundamental point), and more.

To be fair, it took me several decades before I learned to appreciate Keynes in the original. Maybe a reread will make me see the depths of Minsky’s insight across the board. Or maybe not.

I guess the point is that you can be a bad writer and a great economist. And I really am gravitating toward a Keynes-Fisher-Minsky view of macro, although of the three I’d much rather read Keynes.

Comments are no longer being accepted.

And I really am gravitating toward a Keynes-Fisher-Minsky view of macro

From there you must incorporate a broader view of balance sheets and cash flows, something I have found lacking in most analysis these days. When consumers over-leverage they face cash flow issues and that hurts aggregate demand. I don’t care that the debt is internal, it represents a distribution of income issue from consumers to investors. Even if these groups are largely the same, in our current structure it shifts current income into tax sheltered savings that most people do not want to touch due to penalties and that have already lost much of their value.

Koo is on to something. Although in the case of Japan it seems businesses leveraged up much more than in the US, the US consumer is fighting for cash flow to service debt and, wherever possible, de-leverage and replenish savings. This is bad news for aggregate demand.

Now if we could just get you to come around to Randall Wray’s view of the money creation process, you would be really making some progress!!!

I agree about his writing ability. He is a horrible writer on many levels. However, I did find many different chapters to be full of insights. I think this book is second only to the GT in terms of insights per page.

You might have more luck with Minsky’s intellectual bio of Keynes (titled John Maynard Keynes), especially since it embeds Keynes’s own discussion into the text. The Key Minsky Point, IMOH, is that Keynes should have based his investment theory on the price of capital assets, rather than the interest rate. The price of capital assets represents the discounted value of expected returns, but, Minsky claims, the discount factor incorporates entreneurial uncertainty as well as the interest rate. A liquidity trap results when the (implicit) price of capital assets drops below the price of investment goods (new capital assets) because of extreme uncertainty. This can occur even before the interest rate has hit bottom. In a sense, Minsky’s has the IS curve go vertical in a trap, rather than the LM curve horizontal.

I think you are under-valuing Kaleckian distribution theory, since the collapse of I causes the collapse of profits that were intended to meet cash committments (to use Minsky-speak), forcing asset sales and contributing to the downward spiral of a crash. Just saying.

Even the mere challenge put forward by Minsky to the traditional view is brilliant in itself: financial fragility is perfectly plausible, and for those who claim stability there’s a lot to demonstrate. Well, not now, because now we know it can’t be demonstrated. So Minsky was right – in the 1980s.

Of course the role of derivatives is highly ambiguous with respect to the financial fragility thesis. But the challenge remains in exactly the same form: those who claim that stability is even possible have a lot to demonstrate – and again, not now, because now we know there’s no stability.

So this single – admittedly not so well-written book – has a lot of weight: it’s the book that should have been discussed for 25 years but wasn’t.

Hrmph. I saw the title and thought you were reading _Marvin_ Minsky.

Minsky’s first big book, entitled John Maynard Keynes, published in 1975, is quite readable, contains many of his big ideas on financial fragility, and is as good a manifesto for post Keynesian economics as I have read.

I think blogland is going to keep needling PK to read Steve Keen on Minsky.

Marx was the best- a world-class journalist/historian (the 18th Brumaire is an incredible piece of writing), as well as the hard core economic critique- could have won Nobel in writing and econ

Yes. It took you decades to discover keynes. And that turned out pretty good. If you had discovered it before you would have never won the Sveriges Riksbank Prize in Economic Science. Good for you.

Steve Jones thought that Darwin’s prose was a bit too much of an impediment to appreciate The Origin of Species and wrote Darwin’s Ghost. Perhaps certain economists need a similar treatment?

i am not sure about the statement that cultural memory of the depression was important. korea went through a deep depression in 1999-2000. plenty of these same people were in southern california in 2006, buying real estate there.

Professor Krugman,

After we’ve carefully read your column and blog, we are at a loss.

What other books would you recommend for thoughtful concerned citizens?

Bernard Leikind
Encinitas, CA

You’re in Seoul?

Are you speaking publicly? Anywhere I can come and listen?

Annyeonghaseo

Don’t let anyone take you to a hotel buffet or cultural/culinary establishment for a meal. I recommend you try a place called Mabang (literally means “horse room”) at the SE outskirts of Seoul. It’s a place where people coming in from the countryside would stay on their way to Seoul’s markets. Any meal there comes with about 20 side dishes of vegetables and roots which are all yummy. It offers more insight into Korean culinary traditions.

A word to people about 200 story phallic office towers a city does not make would be greatly appreciated. The Dubai/Shanghai mindset is destroying Seoul’s urban character that had been shaped by the mountains in and around the city.

Thanks.

Lander from Barcelona May 19, 2009 · 11:40 am

Great!
A lot of your faithful readers are already waiting for Professor Krugman’s interpretation of Minsky

re: Amazon Kindle – That used to happen to me when I first got it. (original Kindle) But I found that turning off the radio, and only using it when I wanted to check for subscriptions or new downloads makes things work better. (also better battery life)

Yeah, Minsky can be rough going, and reading him is more like mining for nuggets than following an argument.

The other idea he promoted that I found interesing was his ‘Olympian fallacy,’ which was a sort of simplified and bastardized version of the Hegelian dialectic applied to management. Had it enjoyed any popularity in the last generation, we just might have been spared the cult of the CEO. Or was that too much to hope for?

My kindle has had no problems at all. Never crashed or anything.

I haven’t had the crashing problem, but I did get a broken display once, and asked to return it. They sent a new Kindle overnight. I thought that was great! So don’t be afraid to call customer support for a replacement.

Lest I neglect to respond to the content of your post, I will add that you really shouldn’t fault an economist for turgid writing, or you will soon indict the whole field!

My Kindle has frozen three or four times, but that’s been spread out over a couple of months and a couple hundred hours of reading. I usually leave the wireless turned off (no idea if that’s a factor.) Sounds like you got a lemon.

Never had a problem with my Kindle crashing and rebooting. Let Amazon know; I had to have mine replaced because of another issue, and they did so quickly, politely, and at no cost.

What is the Minsky moment?

It is the point at which bourgeois economists retreat from their aspiration to place economic on the same footing as physics and settle for being a sub-branch of psychology.

As a well bearded heterodox economist pointed out 150 years ago ,capitalism is inherently prone to crisis. There is no need for pop-psychology to explain this behavior

Paul – you might have more luck extending the Goodwin growth cycle theory

Kindle crashing?? Do you have the new one or the original? I have the stone-age version since it first came out, and it has never crashed. Nary a problem. I wouldn’t even know how to re-set it, and have never had occasion to think about it.

Prof. Krugman,

I have no problems with my Kindle 2.0. It has never crashed. Maybe you can switch off the wireless while you are traveling. I think the wireless works only with Sprint CDMA in the US.

John David Stanway May 19, 2009 · 1:07 pm

Good economist and bad writer? You betcha: Adam Smith. Holy redundancy, Batman. The Wealth of Nations could easily have been half the length with no lost content. And is it really so necessary to keep writing, “or very nearly the same.”?