Edited by Dimitri B. Papadimitriou and L. Randall Wray
Chapter 3: Minsky and Economic Policy: ‘Keynesianism’ All Over Again?
Éric Tymoigne Introduction1 Minsky’s analysis led him to conclude that there are different forms of capitalism each with pros and cons. Laissez-faire capitalism, where the government represents an insignificant proportion of the economy, promotes individual initiatives and creativity (what one may call entrepreneurship) but also generates depressions and unfair inequalities. On the contrary, big-government capitalism is more stable but also comes with its own problems like a lack of dynamism and inflationary tendencies. Following Keynes, Minsky stated that unfair distribution, economic instability and unemployment were structural problems of market mechanisms, and so he promoted a form of capitalism that significantly involves the government. Many economists would associate Minsky’s view with the Neoclassical Synthesis of the 1950s and 1960s, also known as ‘Keynesianism,’ when monetary and fiscal discretions were used to fine-tune the economy. In this case, most economists would brush away Minsky’s proposal for the same reasons they rejected Keynesianism in the 1970s: lack of rationality (Lucas’s critique), ignorance of credibility and reputation, and lack of consideration for lags and structural barriers to low unemployment. However, Minsky was careful to note that there are different forms of big-government capitalism and that not all forms of government activism are consistent with Keynes’s policy agenda. The Bastard Keynesianism of the mid-20th century, to take Joan Robinson’s colorful characterization, tends to generate arbitrary inequalities, inflationary pressures and longterm unemployment by creating strong income disincentives to reenter the labor force and to hire, by not dealing properly with the chronic shortage of jobs...
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