The Minsky Moment

[garbon]

In other words, he was awesome?

You picked the wrong word.

[Agelastus]

Minsky, 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.

[Alatriste]

Minsky, 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]

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.

[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.

[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.

[The Minsky Moment]

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. 

[saskganesh]

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.

[Admiral Yi]

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]

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"?)

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]

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...

[Martinus]

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?    

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]

Logic is overrated.

[Savonarola]

Logic is overrated.

You make Mr. Spock sad:

[The Minsky Moment]

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.