Did Hyman Minsky anticipate creative capitalism?

March 25, 2014

Bill Gates has called for a more creative form of Capitalism. The work of Hyman Minsky is being reappraised as relevant after the 2008 financial crisis

Minsky’s ideas were taken up by Paul Krugman, and later by other influential figures such as Janet Yellen, now head of the US Federal Reserve bank. They offer an explanation for the irrationalities of economic boom and bust, though inherent instabilities rather than temporary distortions. As such it relates to the Animal Spirits of John Maynard Keynes.

What is creative capitalism

Some posts ago I asked what is the nature of creative capitalism. The question arose after Bill Gates called for it, without exactly joining up the dots. My best shot was a suggestion that thinkers about capitalism were rewriting the map to deal with the uncertainties of the global economic climate. Under such uncertainties, creativity in thought and action becomes important. Mr Gates suggested that Capitalism needs to refocus its energy on social issues including the environment. Minsky suggests how this might come about.

Minsky’s destabilization hypothesis

An interesting article on the BBC website [March 2014] and a subsequent Radio Four broadcast outline why Minsky’s ideas might be relevant.

It seems that the relatively unknown Minsky has attracted attention recently for his theory of inherent instabilities of financial markets. Stock Market bubbles are inevitable as turbulent flow of water from a high pressure hose or water boiling in a saucepan on a hob through induction heating.

Minsky’s three stages

Minsky describes three stages within the process. The hedge is the stage in which the innate caution of professional investors dominates. The hedge offers possibilities for more risky gains, and the famous animal spirits kick in. In Wall Street jargon, the animal spirits move from those of cautious bears to those of Raging Bulls.

The ghost of Ponzi

Conventional wisdom is that bears and bulls eventually damp down irrational blips in the market. Minsky argues that after the speculative stage comes a fraudulent stage he termed the Ponzi stage. This honours or maybe I should say dishonours the schemes of Charles Ponzi, [1882-1949] the infamous modern inventor of a huge pyramid-selling scam.

To be continued

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There’s too much news out there

May 2, 2013

Overwhelmed with newsI’ve been distracted from my customary scan of news sources recently. Now that normal service is being resumed, I have noticed how many leadership stories that are reported every day

This week I would have liked to have followed-up on at least six stories:

The Bangladesh factory tragedy

Hundreds of workers died in a factory building collapse and subsequent fire. The over-simple treatment in the UK focuses on the poor pay and wage conditions of those in the Bangladeshi ‘sweat shops’. [Primark is said to be offering hardship aid to its supplier]. The globalising drive for cheap sources of supply is also being scrutinized. One dilemma to be addressed is the economic benefits of international trade as a country develops.

Krugman and Keynes

Paul Krugman continues to express the neo-Keynesian view that austerity programmes are inadequate for dealing with the exceptional social hardships of a severe recession. He believes the majority of economic commentators are missing the point. Ironically, Keynes was himself frustrated that conventional wisdom of the time seemed unable to appreciate his arguments. Krugman feels pretty much the same, offering this rebuttal of one counter argument. Economies, he says, are not like families. Income and spending are inter-dependent. If we all cut spending our incomes will fall too. He also rejects the idea that this is a leftist spending-spree mentality, but necessary a short-term measure for exceptional economic times.

Alfredo Saenz

Then there was the surprise retirement of Santander chief Alfredo Saenz who is expected to collect a goodbye present of around $100,000,000 rather than cop an investigation into his activities by the Supreme Court .

UKIP

Back in the UK, local elections this week [Thursday May 4th 2012] are seen as a measure of protest votes away from the traditional political parties. The anti-immigration and (even more anti – European Union) party UKIP is tipped to poll well under the leadership of its somewhat unconventional and ebullient Nigel Farage, who is also standing for Parliament in a by-election.

Larry David and his mother

An article by American humourist Larry David looked at how his mother would have reacted to his being arrested for terrorist offenses. It provoked a storm of protests. When told he had confessed she replied “well he probably didn’t want anyone else to suffer.” The article saves me from going any further with an idea I had for a blog which was going to be entitled “every mother is a potential terrorist”.

Reginald D Hunter

Anti-racist comedian Reginald D Hunter is in trouble for using racist language at a Football Association dinner. Or at least I thought it was humour with a political intent, in the tradition of Lenny Bruce.

Coping with overload

This ‘six for the price of one’ blog post is my attempt to cope with information overload. Hope you liked it. Normal service, as they say, may be resumed shortly…


Drugs, the silk road, and new money-laundering systems

April 16, 2013

BitcoinThe market in illegal drugs continues to keep a step ahead of efforts to control it. New technology is already being applied to complement or replace older practices of money laundering

In researching the rise of new technology banking, I came across the rapidly-growing Bit Coin system. It struck me as interesting to those engaged in nefarious operations such as drug trafficking. I was not surprised to learn that the idea had already occurred to others.

According to its own website

Bitcoin is a digital currency, a protocol, and a software that enables instant peer to peer transactions, worldwide payments, low or zero processing fees, and much more.
Bitcoin uses peer to peer technology to operate with no central authority; managing transactions and issuing Bitcoins are carried out collectively by the network. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment systems.

How does Bitcoin work?

The International Business Times offers a nice explanation of how bitcoin works

April 16-17th

Paul Krugman in the International Herald tribute writes of The fallacy of bitbugism. Further insights were provided in a BBC review.