Minsky was a hyperinflationist

[NCR85]

I was pretty amazed to find this out so I thought I'd share this.

For those of you who, like me, value the input of Steve Keen, it might have been a bit of a challenge to wrap your mind around the fact that Keen predicts deflation while EJ predicts an inflationary outcome.

Here's an important piece of the puzzle in that regard: Steve Keen's intellectual predecessor and main inspiration, Hyman Minsky, was not a deflationist. He predicted perpetually accelerating inflation as a result of fanatical efforts on the part of monetary and fiscal institutes to keep the leveraging buildup going.

This may be interesting to those who wondered whether a Minksy-ite vision of the problems troubling the economy would be compatible with inflationary views or not. Keen himself in fact deviates from Minsky's original view when it comes to inflation/deflation.

This is information revealed in the video "the financial crisis - five years and counting (part one)" on Steve Keen's new subscription site (which I strongly recommend).

Transcript:

Phil Dobbie: Minsky basically predicted what happened with the bubble that we've seen and the crisis that we're going through. Did he get it all right?

Steve Keen: He got it almost all right. The only point where I've ever seen Minsky make a fallacious prediction in his verbal argument is that he predicted accelerating inflation indefinitely. This was partly because he thought the government would continue coming to the rescue of the financial system whenever there was a crisis and pump the economy back up again and cause accelerating inflation indefinitely. That's not what happened. (edit: yet?) We've actually had the Volcker period with the attempt to squeeze inflation out of the economy and we then had this period of slowly declining inflation. This is where mathematical reasoning becomes a great assistance, if you use the right mathematics, which neoclassical economists do not use: differential equations and dynamic modeling. When I put Minsky's model of capitalism into a cyclical model of Richard Goodwyn called the Growth Cycle Model, what that generated ultimately was a trend to deflation.

[c1ue]

Re: Minsky was a hyperinflationist

I'm not sure I agree with what Steve Keen is saying.

For one thing, Minsky himself talked about Ponzi economies eventually collapsing. Thus it is inaccurate to say that Minsky argued that inflation would accelerate indefinitely.

It would be accurate, however, to say that Minsky did believe that inflation was the natural course of economies.

I'd also note that it is interesting that a supposed disciple of Minsky would both be an economic modeler (Keen is known for his mathematical modeling, not so much for his theorizing. In a real sense Keen's theories result from his modeling, not vice versa) and would also take Minsky's theories and plug them into other people's economic models.

Thus you have this interesting time series: a mathematical modeler who admires Minsky, plugs his view of Minsky's theories into other people's mathematical models, then takes the result which is opposite to what Minsky actually said.

If you want to see what Minsky actually did, here's a link to the 'Financial Instability Hypothesis' paper which Minsky put out. Note the complete lack of mathematical equations herein.

http://www.levyinstitute.org/pubs/wp74.pdf

[astonas]

Re: Minsky was a hyperinflationist

Very interesting paper! Thanks for linking it here.

Incidently, though the paper itself doesn't have any equations, there are certainly some assertions in there regarding non-equillibrium-seeking self-sustaining effects that do beg for mathematical justification. While I haven't gone through Keen's models yet, I can certainly see why one would wish to investigate these with some equations. Minsky is being more than just a bit hand-wavy here.

I'm curious what assumptions Keen used to come to the conclusion that differed from Minsky. Anyone have a good reference to start from?

[c1ue]

Re: Minsky was a hyperinflationist

Incidently, though the paper itself doesn't have any equations, there are certainly some assertions in there regarding non-equillibrium-seeking self-sustaining effects that do beg for mathematical justification. While I haven't gone through Keen's models yet, I can certainly see why one would wish to investigate these with some equations. Minsky is being more than just a bit hand-wavy here.

I actually do believe Dr. Keen does good work, but the danger of every model is when said model starts to diverge from actual behavior.

Dr. Keen has done an admirable job in trying to yank existing, largely static economic models into dynamic - but it is not clear to me that the myriad assumptions underlying said static models are either correct or able to translate directly into a dynamic version.

If you are interested in economic modeling, I'd suggest first looking at Stiglitz's Nobel prize Information Asymmetry work. There aren't any equations here, but it does go into fairly significant detail on the many and varied models which underly the present economic models - yes, those ones which don't apparently predict anything...

http://www.nobelprize.org/nobel_priz...tz-lecture.pdf

[astonas]

Re: Minsky was a hyperinflationist

Thanks!