In slight despair after reading the Sunday papers and reviewing the past few weeks in the Eurozone, I picked up Hyman Minsky’s [amazon_link id=”0071592997″ target=”_blank” ]Stabilizing an Unstable Economy[/amazon_link]. Minsky deservedly came back into fashion big-time in the immediate aftermath of the 2008 leg of the Great Financial Crisis. However, although his analysis of the inherently unstable financial dynamics of the market economy had stuck in my mind, his policy prescriptions had not.

The final chapters make for rather interesting reading. Minsky notes that Keynesian economics had never really been incorporated into policies. He viewed the usual alternatives of a small-government liberalized capitalism versus a big-government centralized version as a false dichotomy. “All that was assimilated from Keynes by the policy establishment and its clients was the analysis of an economy in deep depression and the policy tool of deficit financing.” (p324)

However, he is no fan of deficit financing albeit recognising its emergency role. Minsky’s own prescriptions could be summed up as:

Focus on full employment, and investment and growth will then look after themselves;

Price stability is essential;

Large scale government investment is a crisis-solution to a depression, which creates an inflationary bias if left in place long term. Government budgets need to be balanced;

A system of transfer payments that is too extensive is both too costly and socially destabilizing;

However, private markets, especially in finance, are economically destabilizing and need to be constrained by government interventions;

The competence of the state to administer is limited, and these interventions should be kept simple.

He ends: “There is no magic economic bullet; no single program or particular reform will set things right for ever.” (p326) Indeed.

This is not, I think, the impression that many people would have of Minsky’s conclusions, which run interestingly aslant the conventional approaches. They also concern long-term frameworks, and while a better approach to the underlying structures of the welfare state, the institutional framework of the economy and economic management are clearly necessary, it doesn’t help the Eurozone this week.

[amazon_image id=”0071592997″ link=”true” target=”_blank” size=”medium” ]Stabilizing an Unstable Economy[/amazon_image]