Minsky charted a progression of financial markets beginning with predominantly conservative borrowers, who can cover the interest on their loans and pay down the principal out of income.
These solid citizens are succeeded by speculative borrowers whose income only covers interest, and then by Ponzi schemers, who can only pay the interest on their loans by borrowing more money.
When financial markets were dominated by Ponzi borrowers, Minsky predicted that the failure of one big player could bring down the whole system, and that's exactly what happened when Lehman failed in September 2008: a Minsky moment.
So Hyman Minsky predicted the mess we're in more accurately than anybody else, and you might think that his prescription for fixing this mess would enjoy more respect than the prescriptions of boneheads like Larry Summers and Tim Geithner and Ben Bernanke, who never saw it coming.
But Minsky's influence is still minimal, and intelligent readers can probably figure out why from Steven Mihm's excellent summary in the Boston Globe...
The preferred mainstream tactic for pulling the economy out of a crisis was - and is - based on the Keynesian notion of "priming the pump" by sending money that will employ lots of high-skilled, unionized labor - by building a new high-speed train line, for example.
Minsky, however, argued for a "bubble-up" approach, sending money to the poor and unskilled first. The government - or what he liked to call "Big Government" - should become the "employer of last resort," he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars.
Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else's wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.
"Sending money to the poor and unskilled first!" But the boneheads who made this mess put Goldman Sachs at the front of the line, and the poor and unskilled nowhere.
