The Minsky Society: Irving Fisher

Greg Mankiw has the Pigou Club, for those who have the good sense to advocate higher Pigovian taxes. Here at Underbelly Central, we today inaugurate The Minsky Society. The Minsky Society is open to those who can show, in an empirically-based and non-lunatic way, that capitalism is unstable not just by accident but inevitably and by nature. The eponymous member #1 is the late Hyman Minsky who probably did more than any other one person to detail just how the engine of finance goes off the rails. The Honorary chairman would be John Maynard Keynes, in fashion now after a long sojourn in the wilderness. We can probably grant membership to Robert Shiller, he of Irrational Exuberance (and note the cool Excel files at his webpage).

Joel offers a new candidate: the late Irving Fisher, famous most of all for the damage he inflicted on the Yale University endowment. The Economist explains how Fisher, though a splendid argument against market timing, pretty well understood the dangers of debt and the pains of deflation:

As parallels to the 1930s multiply, Fisher is relevant again. As it was then, the United States is now awash in debt. No matter that it is mostly “inside” or “internal” debt—owed by Americans to other Americans. As the underlying collateral declines in value and incomes shrink, the real burden of debt rises. Debts go bad, weakening banks, forcing asset sales and driving prices down further. Fisher showed how such a spiral could turn mere busts into depressions. In 1933 he wrote:

Over investment and over speculation are often important; but they would have far less serious results were they not conducted with borrowed money. The very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate…the more debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip. ...

Were Fisher alive today, “he would tell us we have to avoid deflation, and to worry about all that inside debt,” says Robert Dimand, an economist at Brock University in Canada, who has studied Fisher in depth. “The ideal thing is to avoid these situations. Unfortunately, we are in one.”

Beyond that, I get cagey: once you get out from under the streetlight, you find a whole universe of cranks and weirdos who think they understand boom and bust, but whose rantings do little but give the good folks a bad name. This includes some, but not all, of the self-styled Marxists.

For example, I'd want to make a place for Doug Henwood, who I believe styles himself as a Marxist but is perhaps better understood as a pretty shrewd wonkish critic of mainstream macro. Applications of earlier Marxists like Paul Baran and Paul Sweezy are still under review. The application of Karl Marx would probably provoke intolerable conflict on the admissions review board but happily, he has not deigned to apply.

[I refuse to forward the candidacy of John Kenneth Galbraith who always struck me as less of an economist than a pious gasbag--a man without a testable hypothesis, as Harold Demsetz used to say. But I have to admit that The Great Crash was a pretty good book.]