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The Minsky Moment

Started by MadImmortalMan, September 14, 2009, 02:33:07 PM

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garbon

"I've never been quite sure what the point of a eunuch is, if truth be told. It seems to me they're only men with the useful bits cut off."
I drank because I wanted to drown my sorrows, but now the damned things have learned to swim.

Agelastus

QuoteMinsky, however, argued for a "bubble-up" approach, sending money to the poor and unskilled first. The government - or what he liked to call "Big Government" - should become the "employer of last resort," he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else's wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

Interesting. It appears that I have been a Minskyite without realising it. I have never understood why the provision of monies (ie. unemployment benefits) does not involve some tangible return for the taxpayers who fund it. Prisoners used to work for a below market return for their labour, so why shouldn't the unemployed? Even "make work" is valuable in certain circumstances.
"Come grow old with me
The Best is yet to be
The last of life for which the first was made."

Alatriste

Quote from: Agelastus on September 15, 2009, 06:10:31 AM
QuoteMinsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled first. The government - or what he liked to call “Big Government” - should become the “employer of last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

Interesting. It appears that I have been a Minskyite without realising it. I have never understood why the provision of monies (ie. unemployment benefits) does not involve some tangible return for the taxpayers who fund it. Prisoners used to work for a below market return for their labour, so why shouldn't the unemployed? Even "make work" is valuable in certain circumstances.

Same objection in both cases (and also against slavery in the old South): such schemes expel what we could call 'free workers' from the market. Actually "make work" can be far better because any other type of work would make businesses fire their old workers and employ these 'forced' ones instead.

In other words, if you don't pay those workers market wages, massive distortion follows.

Agelastus

Quote from: Alatriste on September 15, 2009, 07:08:23 AM
Same objection in both cases (and also against slavery in the old South): such schemes expel what we could call 'free workers' from the market. Actually "make work" can be far better because any other type of work would make businesses fire their old workers and employ these 'forced' ones instead.

In other words, if you don't pay those workers market wages, massive distortion follows.

Sending people on the dole out to sweep streets is not going to distort the labour market (as council street sweeping machines are already so rare.) Forcing them to do gardening is not going to distort the labour market (as most regular householders cannot afford professional gardeners.) There are many marginal jobs of social usefulness that could be done by the unemployed without distorting the labour market.
"Come grow old with me
The Best is yet to be
The last of life for which the first was made."

Razgovory

Heh.  That prison labor thing used to be a touchy issue.  In my town the locals set off a bomb that blew up a broom factory that used inmate labor.
I've given it serious thought. I must scorn the ways of my family, and seek a Japanese woman to yield me my progeny. He shall live in the lands of the east, and be well tutored in his sacred trust to weave the best traditions of Japan and the Sacred South together, until such time as he (or, indeed his house, which will periodically require infusion of both Southern and Japanese bloodlines of note) can deliver to the South it's independence, either in this world or in space.  -Lettow April of 2011

Raz is right. -MadImmortalMan March of 2017

DontSayBanana

Regarding whether Minsky gets better recognition or not, it would be nice to see more non-econ MBAs working on the ground level become familiar with his work; being built on experience, it does seem that it would benefit a manager as a better platform on keeping pie-in-the-sky economists in check.
Experience bij!

The Minsky Moment

Quote from: Alatriste on September 15, 2009, 07:08:23 AM
Same objection in both cases (and also against slavery in the old South): such schemes expel what we could call 'free workers' from the market.

Minsky's proposal would operate as an employer of last resort scheme.  If the economy is at full employment, then no one is in the scheme. 
The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.
--Joan Robinson

saskganesh

Quote from: The Minsky Moment on September 15, 2009, 09:19:30 AM
Quote from: Alatriste on September 15, 2009, 07:08:23 AM
Same objection in both cases (and also against slavery in the old South): such schemes expel what we could call 'free workers' from the market.

Minsky's proposal would operate as an employer of last resort scheme.  If the economy is at full employment, then no one is in the scheme.

there's probably a certain percentage of "down shifters" who would prefer sticking in the "last resort", employment program until their dream job/career came through.

easy work, not a lot of hassle, minimum wage but steady cash. but , I don't think this would be a bad thing.
humans were created in their own image

Admiral Yi

Quote from: DontSayBanana on September 15, 2009, 08:05:37 AM
Regarding whether Minsky gets better recognition or not, it would be nice to see more non-econ MBAs working on the ground level become familiar with his work; being built on experience, it does seem that it would benefit a manager as a better platform on keeping pie-in-the-sky economists in check.
From everything that I've heard and read in-house economic forecasting shops are just about the least-listened to people in financial firms.

Alatriste

Quote from: Agelastus on September 15, 2009, 07:21:42 AM
Quote from: Alatriste on September 15, 2009, 07:08:23 AM
Same objection in both cases (and also against slavery in the old South): such schemes expel what we could call 'free workers' from the market. Actually "make work" can be far better because any other type of work would make businesses fire their old workers and employ these 'forced' ones instead.

In other words, if you don't pay those workers market wages, massive distortion follows.

Sending people on the dole out to sweep streets is not going to distort the labour market (as council street sweeping machines are already so rare.) Forcing them to do gardening is not going to distort the labour market (as most regular householders cannot afford professional gardeners.) There are many marginal jobs of social usefulness that could be done by the unemployed without distorting the labour market.

I can't really agree, because those marginal works of social usefulness, like street sweeping and gardening, are already occupied, and by the poorest people. For example, recent immigrants... now, it's true that regular householders almost never employ gardeners, but sending people in the dole to tend private gardens is very close to being 'make work' (and wouldn't really be popular... can you imagine the reaction if the unemployed were sent to the suburbs to care for the gardens of "rich people"?)

Quote
Minsky's proposal would operate as an employer of last resort scheme.  If the economy is at full employment, then no one is in the scheme.

I agree, and I think it would be a good idea, but I tend to think it would be better to pay market wages or create real "make work" (I read somewhere that during the New Deal teams of people were employed doing things like writing a History of the Needle; stupid at first sight, not so stupid when you think over the matter)

Agelastus

Quote from: Alatriste on September 16, 2009, 12:45:48 AM
I can't really agree, because those marginal works of social usefulness, like street sweeping and gardening, are already occupied, and by the poorest people. For example, recent immigrants... now, it's true that regular householders almost never employ gardeners, but sending people in the dole to tend private gardens is very close to being 'make work' (and wouldn't really be popular... can you imagine the reaction if the unemployed were sent to the suburbs to care for the gardens of "rich people"?)

Hmmmm......

Firstly, street sweeping is not being done in most places in the country - in the town I live in you may see a council street sweeping machine once a year. So the jobs I mentioned as a possible "make work" wouldn't exist without the government revising the way unemployment benefit is allocated.

Secondly, perhaps I should point out that I am currently "on the dole", well educated as I am - I have no fear of the reaction of suburban dwellers...
"Come grow old with me
The Best is yet to be
The last of life for which the first was made."

Martinus

Quote from: Valmy on September 14, 2009, 02:56:29 PM
Quote from: DGuller on September 14, 2009, 02:53:59 PM
I'm not really sure why this is such a surprise revelation.  Maybe the article omits some profound details, because the executive summary doesn't seem surprising at all.  Booms lead to reckless over-leveraging, and reckless over-leveraging can lead to a chain reaction starting with a relatively minor event.  That's the insight being rediscovered?   :rolleyes: 

Yeah his profound theory seemed just logical to me.

Surely economists are not shocked by the rediscovery of logic.

Economists perhaps not but then who listens to them?

Bankers - the people who make all the decisions that brought the collapse - usually have no training in economy at all. Nor logic, it seems.

Razgovory

I've given it serious thought. I must scorn the ways of my family, and seek a Japanese woman to yield me my progeny. He shall live in the lands of the east, and be well tutored in his sacred trust to weave the best traditions of Japan and the Sacred South together, until such time as he (or, indeed his house, which will periodically require infusion of both Southern and Japanese bloodlines of note) can deliver to the South it's independence, either in this world or in space.  -Lettow April of 2011

Raz is right. -MadImmortalMan March of 2017

Savonarola

In Italy, for thirty years under the Borgias, they had warfare, terror, murder and bloodshed, but they produced Michelangelo, Leonardo da Vinci and the Renaissance. In Switzerland, they had brotherly love, they had five hundred years of democracy and peace—and what did that produce? The cuckoo clock

The Minsky Moment

#29
Quote from: DGuller on September 14, 2009, 02:53:59 PM
I'm not really sure why this is such a surprise revelation. 

This may come as a suprise, but most mainstream macroeconomic models (including the neo-classical school) do not model the financial sector or financial variables other than the money supply (which is usually taken as a policy variable determined by fed fiat) and the interest rate which is a function of fed policy and transactions demand as measured as a function of output.

Thus under mainstream macro, the entire system of private credit provision is effectively abstracted out.  Thus, although these models do a decent job of allowing analysis of real activity in times of relative stability and can spit out reasonably accurate forecasts, they aren't properly designed for modelling a financial driven asset bubble.
The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.
--Joan Robinson