I try to turn away, but I get sucked back in.
I do have one more thought to put out there after reading the second Minsky book. Often, I hear about a golden age for the economy in the period following WWII up until the mid-60s/early-70s – as Minksy points to 1966 as the turning point, we’ll use that as the end date. The usual suggestion is that it validates Keynesian theory, even as guys like Minsky call the period an anomaly in an otherwise volatile history for capitalism.
Well, what if we take Minsky’s theory at face value – that in the aftermath of a crash, there is a period of time where risk is kept in check because of the frayed nerves (and balance sheets) of bankers and investors. And what if we also point out that even as risk returns, that there is still then a period characterized by hedged financing before things get crazy.
Then consider when this “golden age” actually took place. After a great depression and a world war – basically, a 16-year period of incredible disruption and insecurity. Is it reasonable that people weren’t rushing back to make big bets and placed a premium on liquidity? Layer in the following as well – WWII was a period of rationing and living without. I don’t have the statistics handy, but I would reckon that Americans had a greater level of savings at the end of the war relative to any other recent period.
So, now we combine high savings (and a greater margin of safety and more liquidity to work through), with a lower level of risk-taking, and we should be surprised that things took a little while to get out of hand again?
My point: maybe this notion of a golden age is really nothing more than a slightly longer version of what has been playing out over and over again since the Fed came around. It’s not about some adherence to an institutional framework that was more stable (and that some people like to credit to Keynesian theory), it was simply the same train wreck playing out a bit more slowly because of exogenous factors that are not typical of any other period.
