Posts Tagged ‘Robert Barro’

economics-cartoon

Once again, the work of Hyman Minsky has been discovered—this time, by the BBC.

Minsky’s main idea is so simple that it could fit on a T-shirt, with just three words: “Stability is destabilising.”

Most macroeconomists work with what they call “equilibrium models” – the idea is that a modern market economy is fundamentally stable. That is not to say nothing ever changes but it grows in a steady way.

To generate an economic crisis or a sudden boom some sort of external shock has to occur – whether that be a rise in oil prices, a war or the invention of the internet.

Minsky disagreed. He thought that the system itself could generate shocks through its own internal dynamics. He believed that during periods of economic stability, banks, firms and other economic agents become complacent.

They assume that the good times will keep on going and begin to take ever greater risks in pursuit of profit. So the seeds of the next crisis are sown in the good time.

Much the same can be said about Marx’s work. In both theories, crises are endogenously produced within the capitalist system itself.

The approaches differ, of course: while Minsky focused on rising debt and complacency, Marx emphasized class exploitation and capitalist competition. But it doesn’t take much work to combine the insights of the two thinkers to identify what we might call the “Minsky-Marx moment”—the moment when, as a result of rising debt and competition over the surplus, the whole house of cards falls down.

But you won’t find either in modern macroeconomics. In fact, if you search inside one of the leading texts—Robert Barro’s Macroeconomics: A Modern Approach—you won’t find even a single mention of Minsky or Marx.

It’s no wonder modern mainstream macroeconomists and their students had so little to offer in terms of understanding how and why the latest crisis occurred or what to do once the house of cards did in fact come tumbling down.