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The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future, by Robert Barbera
Reviewed by Julian Delasantellis
Just for a moment, pretend this is the 1967 movie The Graduate. You, readers, are poor, confused liberal arts graduate Benjamin Braddock. I'm the older gentleman who, at the graduation party thrown by Ben's parents at the family home, takes the younger man aside to give some advice derived from the labors and pains of the years.
"I just want to say one word to you. Just one word."
"Yes, sir?"
"Are you listening?"
"Yes sir."
"Minsky. Hyman Minsky. Lot of future in Hyman Minsky"
Actually, the line was that the future was in plastics. But in so many ways, the actual history of the past 40 years has been the story of Hyman Minsky.
A few weeks ago, I wrote about the competition between the followers of John Maynard Keynes and Milton Friedman for the title of the most influential economist of the twentieth century, I noted how, even with the followers of the two 20th century greats locked in a death struggle among dead ideologies, there is no question of who the 21st century's most influential economist is, even with the century barely 10% done.
"His name is Hyman Minsky."
Even among the economic literati the name of Hyman Minsky is not well known, and that is unfortunate. Born in 1919 and raised in the time of Friedman; yet, once again more in tune to history's different drummer, nor was Minsky a Friedmanite monetarist. Out of place in the 20th century, he would have found himself at the central fulcrum of economic ideology in the 21st, had he not died in 1996.
Keynes' burden to bear was the unemployment spurred by the Great Depression in the middle of the last century, and the great inflation that followed the over application of Keynes at the end of the century. The situation that faced Minsky was none, or perhaps all, of both wrapped together - the problem of the financial market bubble.
The rescue of the Great Depression economy by Keynes was, by the 1960s, so comprehensive and thorough that one of the depression's acknowledged causes, destructive financial market bubbles whose dolorous impact spreads out of finance to negatively impact the general economy, was something only remembered by old timers.
The world economy essentially went more than 50 years, from the Wall Street crash of 1929 to at least the gold/silver bubble of 1980, before experiencing another such bubble. With the 1970s' threat of inflation then controlled by monetarism and its strict control of the money supply, interest in studying or even considering financial market bubbles began to be seen as the quick way for young economists to kill their careers.
Economists found tools to smooth out the shooting ascents and crashing descents of the previous decades; the fact that they could, with inflation falling towards zero and recessions becoming few and mild, only confirmed the name of the period given to the era right up until the recent crashes as "the Great Moderation".
The reign of former US Federal Reserve Board chairman, Alan Greenspan, of more than 20 years of mostly prosperity was monetarism seizing the king's throne; during his tenure he was famed and feted for his obsession with drawing meaning from the most obscure economic statistics; from truck tire retreadings to rat turds left on freight rail cars, Greenspan was known for his interpretive artistry with the arcana of everyday economic life.
As for his studying gyrations in the financial markets, and their effect on the everyday, outside, real economy, Greenspan cared little. Sometimes financial markets would be going up, sometimes down, but, as long as government did not intervene, it all would work itself out in the end.
Exactly the opposite to what Hyman Minsky believed.
The springtime fascination with Minsky was short-lived and superficial, and it's now mostly passed. Neither of the two, recent forest-leveling bruisers meant to be the sources of record for the entire crisis, Andrew Ross Sorkin's Too Big To Fail, and Charles Gasparino's The Sellout, carried any mention of Minsky. That leaves it to Barbera as one of the few commentators actually saying something interesting and innovative about the crisis.
In the church of Friedman, inflation was the ol' devil tempting the good folk; the 1980s seemed to prove that, let loose, it would cause untold havoc on the populace. But, as Barbera notes: The last five major global cyclical events were the early 1990s recession - largely occasioned by the US Savings & Loan crisis, the collapse of Japan Inc after the market crash of 1990, the Asian crisis of the mid-1990s, the fabulous technology boom/bust cycle at the turn of the millennium, and the unprecedented rise and then collapse for US real estate in 2007-2008. All five episodes delivered recessions, either global or regional. In no case was there a significant prior acceleration of wages and general prices. In each case, an investment boom and an associated asset market ran to improbable heights and then collapsed. From 1945 to 1985, there was no recession caused by the instability of investment prompted by financial speculation - and since 1985 there has been no recession that has not been caused by these factors. Thus, meet the devil in Minsky's paradise - "an investment boom and an associated asset market [that] ran to improbable heights and then collapsed".
At Harvard, Minsky had studied under the king of the Austrian School of economics, Joseph Schumpeter, and many see echoes of Schumpeter's famed "creative destruction" in Minsky's theory of financial cycles. Minsky would not have been one of these. Whereas Schumpeter believed that each successive boom and bust cycle led to a more advanced and productive economy, Minsky believed just the opposite, seeing in the successive financial crisis that ended with the Great Depression ever greater and greater danger, through the growing amounts involved, to the financial markets and the economy in general.
It was his contention that bubbles were not rare, unpredictable events, but natural, to-be-expected features of modern finance capitalism.
If as the cultural zeitgeist seems to demand, and in contrast to all we've learned from Minsky, another bubble is so soon spun in another ill-considered attempt to bring back the prosperity of the previous burst bubbles, it will be too late to maintain the world capitalist economy in any now recognizable form.
The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future, by Robert Barbera, McGraw-Hill. ISBN-10: 0071628444. Price US$27.95, 240 pages.
http://www.atimes.com/atimes/Global_.../KL23Dj02.html
The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future, by Robert Barbera
Reviewed by Julian Delasantellis
Just for a moment, pretend this is the 1967 movie The Graduate. You, readers, are poor, confused liberal arts graduate Benjamin Braddock. I'm the older gentleman who, at the graduation party thrown by Ben's parents at the family home, takes the younger man aside to give some advice derived from the labors and pains of the years.
"I just want to say one word to you. Just one word."
"Yes, sir?"
"Are you listening?"
"Yes sir."
"Minsky. Hyman Minsky. Lot of future in Hyman Minsky"
Actually, the line was that the future was in plastics. But in so many ways, the actual history of the past 40 years has been the story of Hyman Minsky.
A few weeks ago, I wrote about the competition between the followers of John Maynard Keynes and Milton Friedman for the title of the most influential economist of the twentieth century, I noted how, even with the followers of the two 20th century greats locked in a death struggle among dead ideologies, there is no question of who the 21st century's most influential economist is, even with the century barely 10% done.
"His name is Hyman Minsky."
Even among the economic literati the name of Hyman Minsky is not well known, and that is unfortunate. Born in 1919 and raised in the time of Friedman; yet, once again more in tune to history's different drummer, nor was Minsky a Friedmanite monetarist. Out of place in the 20th century, he would have found himself at the central fulcrum of economic ideology in the 21st, had he not died in 1996. Keynes' burden to bear was the unemployment spurred by the Great Depression in the middle of the last century, and the great inflation that followed the over application of Keynes at the end of the century. The situation that faced Minsky was none, or perhaps all, of both wrapped together - the problem of the financial market bubble.
The rescue of the Great Depression economy by Keynes was, by the 1960s, so comprehensive and thorough that one of the depression's acknowledged causes, destructive financial market bubbles whose dolorous impact spreads out of finance to negatively impact the general economy, was something only remembered by old timers.
The world economy essentially went more than 50 years, from the Wall Street crash of 1929 to at least the gold/silver bubble of 1980, before experiencing another such bubble. With the 1970s' threat of inflation then controlled by monetarism and its strict control of the money supply, interest in studying or even considering financial market bubbles began to be seen as the quick way for young economists to kill their careers.
Economists found tools to smooth out the shooting ascents and crashing descents of the previous decades; the fact that they could, with inflation falling towards zero and recessions becoming few and mild, only confirmed the name of the period given to the era right up until the recent crashes as "the Great Moderation".
The reign of former US Federal Reserve Board chairman, Alan Greenspan, of more than 20 years of mostly prosperity was monetarism seizing the king's throne; during his tenure he was famed and feted for his obsession with drawing meaning from the most obscure economic statistics; from truck tire retreadings to rat turds left on freight rail cars, Greenspan was known for his interpretive artistry with the arcana of everyday economic life.
As for his studying gyrations in the financial markets, and their effect on the everyday, outside, real economy, Greenspan cared little. Sometimes financial markets would be going up, sometimes down, but, as long as government did not intervene, it all would work itself out in the end.
Exactly the opposite to what Hyman Minsky believed.
The springtime fascination with Minsky was short-lived and superficial, and it's now mostly passed. Neither of the two, recent forest-leveling bruisers meant to be the sources of record for the entire crisis, Andrew Ross Sorkin's Too Big To Fail, and Charles Gasparino's The Sellout, carried any mention of Minsky. That leaves it to Barbera as one of the few commentators actually saying something interesting and innovative about the crisis.
In the church of Friedman, inflation was the ol' devil tempting the good folk; the 1980s seemed to prove that, let loose, it would cause untold havoc on the populace. But, as Barbera notes: The last five major global cyclical events were the early 1990s recession - largely occasioned by the US Savings & Loan crisis, the collapse of Japan Inc after the market crash of 1990, the Asian crisis of the mid-1990s, the fabulous technology boom/bust cycle at the turn of the millennium, and the unprecedented rise and then collapse for US real estate in 2007-2008. All five episodes delivered recessions, either global or regional. In no case was there a significant prior acceleration of wages and general prices. In each case, an investment boom and an associated asset market ran to improbable heights and then collapsed. From 1945 to 1985, there was no recession caused by the instability of investment prompted by financial speculation - and since 1985 there has been no recession that has not been caused by these factors. Thus, meet the devil in Minsky's paradise - "an investment boom and an associated asset market [that] ran to improbable heights and then collapsed".
At Harvard, Minsky had studied under the king of the Austrian School of economics, Joseph Schumpeter, and many see echoes of Schumpeter's famed "creative destruction" in Minsky's theory of financial cycles. Minsky would not have been one of these. Whereas Schumpeter believed that each successive boom and bust cycle led to a more advanced and productive economy, Minsky believed just the opposite, seeing in the successive financial crisis that ended with the Great Depression ever greater and greater danger, through the growing amounts involved, to the financial markets and the economy in general.
It was his contention that bubbles were not rare, unpredictable events, but natural, to-be-expected features of modern finance capitalism.
If as the cultural zeitgeist seems to demand, and in contrast to all we've learned from Minsky, another bubble is so soon spun in another ill-considered attempt to bring back the prosperity of the previous burst bubbles, it will be too late to maintain the world capitalist economy in any now recognizable form.
The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future, by Robert Barbera, McGraw-Hill. ISBN-10: 0071628444. Price US$27.95, 240 pages.
http://www.atimes.com/atimes/Global_.../KL23Dj02.html
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