The next Post Keynesian “idol” that I have chosen to read is Hyman Minsky, tackling his book John Maynard Keynes (1975).
It covers Minsky’s explanation of how economists have misinterpreted and misapplied the core ideas of The General Theory. In particular, how they did not understand Keynes’ use of “uncertainty”, especially its impact on finance and investment decisions. This story is told in a world where disequilibrium is the natural state of things and there is not a tendency towards full employment once things head south (making use of Fisher’s debt-deflation theory in establishing that point). But, to start closer to the beginning, Keynes understood that portfolio allocation is largely made under a fog of uncertainty. Nevertheless, in times of stability, as prosperity becomes the norm, an expectation develops that growth can only perpetuate, as yields and capital gains go up, fostering a belief that the resulting increase in borrowing power should be put to use. And as that happens, the margin of safety decreases – cash reserves decline as liability structures become more heavily indebted. But with that transition, at a certain point, rather than having the reserves to cover all liabilities, assets will actually need to be sold. And when a lot of people are forced to do it at the same time, the debt-deflation story takes hold. Minsky (channeling Keynes) believes that the problem is in large part due to a system that caters to private investment above all else and permits disparities in wealth, thereby leading to a rentier state where the propensity to consume declines.
Minsky attributes these problems to capitalism, because it encourages conspicuous consumption and a scarcity of capital for productive ends. In Keynes, he saw a theory that promoted larger government to combat the problems of inequality and risky speculation. Namely, it called for attempts to decrease dependence on private investment, constraints on the liability structure of business firms, and increases in transfer payments. To my ear, it sounds unrealistic, it sounds pretty socialist, it sounds like a nanny state, and it sounds like an environment where a favored class can still get ahead. So, on that basis, I’m not sure this guy is the best advertisement for Keynesian economics.
