Selected Essays of James Tobin
Chapter 27: On Minsky's agenda for reform
27. On Minsky’s agenda for reform In economics, theory and policy are intimately related. Policy recommendations are derived from theory, and in turn theory is revealed by dicta regarding policy. Chapter 13 of Minsky’s Stabilizing an Unstable Economy is an unusually complete design. Here is Hy Minsky’s conception of a stable, prosperous, eﬃcient, equitable capitalist system. It is the ﬁnal chapter of his 1986 book, and I found it the most revealing exposition of Minsky’s theory and his diﬀerences from other versions of Keynesian economics. It is an ambitious and comprehensive manifesto. Minsky’s objective is no less than to design a self-regulated system, one that does not depend on frequent discretionary policy moves, whether by central banks, ﬁnance ministries, regulators or legislatures. It is not that Minsky is fashionably advocating rules for policy makers rather than discretion. It is not that he is trusting an Adam Smith–Gerard Debreu Invisible Hand, although he does see an indispensable role for market competition and proposes a number of institutions to protect and promote it. It is not that he derogates the roles of government, either micro or macro. To the contrary, his self-regulating capitalist economy depends for its stability on Big Government, the source of macroeconomic built-in countercyclical variations of aggregate demand and thus of proﬁts. The federal government, according to Minsky, should account for about 20 per cent of full-employment GDP. Full employment he identiﬁes with 6 per cent unemployment, although he surely and gladly would now...
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