Saturday, May 31, 2014

A Partial Critique Of Minsky's Social Policies

At the request of "friends" who insisted that I supply page numbers and/ or paper titles to back up some things that I said about Minsky, here are a few things that caught my eye.   This is by no means a complete take-down of Minsky -- that would require a book (and I would love to write that book, but I would have to first either win the lottery, or else live in a country that had a Basic Income Guarantee to sustain me while I wrote the book).   But this blog highlights some of the things that caught my attention and made me lose respect for Minsky and his modern day disciples.

Unless otherwise noted, all page numbers refer to the paperback collection of Minsky papers, "Ending Poverty, Jobs, Not Welfare."   There are certainly many  other Minsky papers that are not included in that book, and Minsky's views varied slightly from paper to paper, so you may well be able to cite other Minsky papers that contradict the Minsky quotes that I will include here, because indeed, Minsky often contradicted himself!     Nonetheless these specific quotes seem to be representative of the mindset that drove Minsky's policies.

Note that even though I am very critical of Minsky's views on social policy, particularly his Puritanism, I respect his better known macro work on instability.   IMHO Minsky was a pretty good economist who was hampered by some old fashioned personal biases.

Minsky claims that the New Deal & Great Society failed to reduce inequality

Page 28, "Effects of Shifts of Aggregate Demand upon Income Distribution,"   Minsky claims that "the distribution of relative wages did not appreciably improve during the expansion of the 1960's."   Minsky repeats this claim on page 68 of "Poverty and Policy": "Thus the labor markets as they behaved during the 1960's did not tend to reduce the inequality of incomes."  To back up this claim, he provides a table of blue collar wages on page 34  (and a similar table on page 66) showing that unionized & skilled blue collar wages increased while low-skilled, non-unionized wages were stagnant.   The gold standard for measuring income inequality is the Gini coefficient, but Minsky does not even acknowledge the existence of the Gini coefficient.

A quick glance at a historical Gina chart disproves Minsky's claim. 
In fact, the New Deal and Great Society policies did reduce inequality and did improve median incomes.    They were not failures, as Minsky claimed.   They weren't perfect, but they were moving us in the right direction.

This is important because the gist of "Jobs, Not Welfare" is that the War On Poverty was a failure so we should scrap it and start over.     If the New Deal/Great Society programs were actually a success, then Minsky's argument is invalid.

Minsky claims that it is impossible to maintain full employment without inflation

Minsky also claims that Keynesian policies failed because they caused inflation.   I.e., page 69 "Are there any fundamental and strong forces in a capitalist economy which tend to make the sustaining of full employment politically unpopular, unproductive in reducing poverty, or very difficult?  The answer to the question is that there are:  inflation .... decreases the political popularity of full employment."

Here again I would have to write an entire book to do justice to the subject of inflation (does anyone want to support me while I am writing that book?)   For now I will merely note that the subject of what causes inflation and what to do about inflation are still hotly debated.   Some economists claim that  inflation has usually been caused by oil prices, not by Keynesian deficit spending, and many MMT economists seem to agree, yet these same MMT economists who agree that most inflation has been caused by oil will turn around and say "we can't have full employment without a JG because inflation." 

Australia maintained tight full employment with low inflation for 30 years (approximately 1945 - 75).    The Aussie "golden years" ended when OPEC jacked up the price of oil.   The point is, if Australia can create and maintain full employment without inflation, that shows that it is possible (as long as oil is cheap !)

So Minsky cites inflation as another reason that New Deal / Great Society policies have failed and why we should scrap those policies and start over.   But of inflation was actually due to oil, then Minsky's argument is invalid.

Minsky claims that Food Stamps cause inflation

P. 138, "The Poverty of Economic Policy," 1975:   "The food stamp program is a significant factor generating the inflation that has so troubled us in the past several years."    Minsky present no proof to back up this claim (no page numbers or paper titles !)

Once again, it would take a major paper if not a book to do justice to the subject of food prices.   For now I will merely point out that most of us now agree that the 70's inflation was caused by energy prices.   But rather than doing any real research to understand the causes of inflation, Minsky simply jumps to the conclusion that 70's inflation was caused by transfer programs like Food Stamps.  Minsky believed that transfer programs were a failure so we should scrap them and start over.   If 70's inflation was actually caused by oil, then Minsky's argument is invalid.

IMHO, it may be that, to the extent that Food Stamps allow people to buy more food, that does put upward pressure on food prices.   But if we replaced transfer programs with a JG that paid a living wage for doing make work, and if JG workers spend their paycheck on food, that's still going to put upward pressure on food prices.   The only way that a JG would reduce food inflation would be if the JG somehow increased food production -- which is not necessarily a bad idea.   One of my thoughts is to offer a BIG conditional on the individual growing vegetables and raising chickens in their back yard (you may laugh but with climate change looming, local food production may become a big deal).   

However, most JG programs talk about picking up trash, maintaining parks, daycare, teacher's assistants, etc..   All nice things, but not related to producing food.   Pavlina Tcherneva has suggested using the JG to subsidize some local community gardens, but her proposal is vague (where does the land and water, etc., come from, how do you distribute the produce, etc.).   In any event it is unlikely that a few community gardens would make a dent in national food production.

Also bear in mind that until recently the US had agricultural policies that actually paid farmers not to produce, that our current ethanol policy inflates food prices, and that we still have trade policies that discourage food imports, i.e., Americans are not allowed to buy sugar from Cuba.  

Another factor in food prices is monopolization of the food industry.   Another factor is global population growth.   Another factor is energy costs (industrialized agriculture is energy intenstive).   And so forth.   There are many factors that influence food prices, yet Minsky ignores all that and jumps to the conclusion that Food Stamps are to blame.   Instead of making an honest effort to understand the economic problems and then propose economic policies to address those problems, Minsky starts out with a certain ideology -- that work is good and welfare is bad -- and invents economic logic to justify his ideology.   I disrespect him for that.

Minsky Embraces Supply Side Economics

P. 140, "The Poverty of Economic Policy" : "Transfer payments always involve a transfer of income from those who are active in the labor force to an inactive segment of the population.   The transfer takes the form of raising the price level of consumption goods."

That is supply side economics -- that the economy is constrained by supply.   Post-Keynesians disagree, believing that there's usually excess production capacity and that the economy is usually limited by demand, not by supply.

I tend to sympathize with the Post-Keynesian view.   We have more vacant houses than homeless people.   The US has generally been capable of growing more food than it can produce, so we pay farmers not to grow food, or we pay them to grow corn for ethanol.   Toyota is quite capable of producing more cars, but I don't have the money to buy a new Toyota.   And so on and so forth. 

Certainly there have sometimes been shortages of particular items -- if the Russian wheat crop fails, if war disrupts the oil supply, etc., so the supply side vs. demand side argument is not black and white.   But mostly I think Minsky's supply-side assumption is wrong.

Minsky Disses Policies That Helped The Middle Class

P. 150 "The policy has been .... to expand government spending on projects that tend to hire the already well-paid workers: defense, space, highways, fancy metro systems, housing, etc.."

And this is a bad thing?    Those are the jobs, along with manufacturing, that created the American middle class.   Those are the kinds of jobs we need more of !

There is a grain of truth in what Minsky was trying to say -- that we should create jobs for everyone, not just the middle class.    But in fact, Keynesian economics did create many entry level jobs.   When you build a dam, that creates jobs for manual laborers as well as for skilled laborers.   When you manufacture a military jet, that creates entry level jobs to sweep the floor and to drive fork lifts as well as skilled jobs and professional jobs.   Don't try to tell me that Keynesian economics was a failure because it created lots of middle class jobs ! 

Minsky Claims The Middle Class Can Take Care of Themselves

P. 150 "The strategy [of the ELR] is to create jobs .... [for] the unemployed and low-income population.  The already affluent need no breaks, and they can, so to speak, take care of themselves."

Bear in mind that when Minsky refers to the "affluent," he is talking about the middle class, not about the 1%.   It's true that the middle class was doing fairly well when Minsky wrote that 1975, but IMHO that was precisely because of the New Deal/Great Society policies that benefited the middle class.

One of my gripes with the ELR/JG is that, despite the claim that it would create a job to match the individual's skills, the truth is that it's a heckuva lot easier to create a grunt job than to create a job for someone with a specialized skill.   The Minsky/MMT position is that the government should focus on helping the unskilled and let the skilled fend for themselves.   That might have worked in the relatively strong economy of the New Deal/Great Society, but it's woefully inadequate for our current age of austerity, when we have  unemployment and and underemployment that cuts across all skill levels.   We have engineers delivering pizzas and PhD's on food stamps !  

Minsky Proposed Taking Children Out of School and Putting Them in Labor Camps

P 151.  "I would initially program the operation for 1,000,000 young men and women at the ages of 16 through 21 ...... the program would would involve camp living .... I would use military personal in supervisory functions at the camps ... if young men and women who do not want to be in school .... were removed from the NYC school system and streets, the task for the schools and the public authorities would be eased."

Hitler would agree !

For the record, I do support a CCC-type program aimed at young adults, but I certainly would not take 16 year olds out of school and put them in military style camps !   My personal rule for any JG, CCC, or BIG would be that the individual must first be 18 years old and/or complete high school.

Minsky Proposed Repealing Child Labor Laws and Putting School Children to Work?

P. 151.   "I would make NYA jobs available to all [students] who want to work .... half during the school year and half in the summer."    Minsky does not explain exactly what kids would do in these jobs.

But, I googled the NYA -- it was a New Deal work-study program for ages 16 - 21.    Most of the time NYA kids would get paid to study what they would study anyway, as in the attached picture of an NYA class getting paid to study typing.   So it wasn't really a "job," it was a handout.    It stimulated the economy, and perhaps it encouraged some kids to stay in school.   I'm all for that.

But how would that be different than the Scandinavian practice of giving college students a stipend, or Rodger Mitchell's proposal to pay students a salary?

If you give a college student money and call it a "transfer," then Minsky is opposed to it, because transfers are very, very bad.   But if you pay a college student to go to college and call it a "job," then Minsky believes it's a great idea, because jobs are very, very good .....  sigh.

Minsky Wanted To Dismantle SS and Force Old People To Work Until They Keel Over

P. 152 "Social Security is another transfer payment scheme that has to be brought under control.  .... I would eliminate the 62 optional and the 65 mandatory retirement ages ....  such a combination of a right to work (including full or half-time on the WPA) .... should enable us to end the pressure for ever-escalating benefits."

In other words, screw Social Security and make Grandma and Grandpa work at the ELR until the keel over -- and rest assured that many of them would keel over before they reached Minsky's retirement age.    Why be so tough on Grandma and Grandpa?   Because transfers are very, very, bad and work is very, very good, in Minsky's warped Puritan mind.

Note that one of the justifications for creating SS in the first place, besides not wanting Grandma and Grandpa to starve, was to encourage old people to retire so that job openings would be created for unemployed young people.   That is still a legitimate issue today -- old people are working longer and longer because SS doesn't pay enough to live on and their private retirement savings were wiped out by recessions,  while young people are unemployed.

People of color do not live as long as white people, poor people do not live as long as rich people, and men do not live as long as women.   An arbitrary retirement age of 65 means that rich white women may enjoy 35 years of retirement while poor men of color may never live long enough to draw Social Security.   That's not fair.   Since everyone's health is different, and since different occupations have different physical requirements, it makes a lot more sense to me to let the individual decide when to retire.   A means-tested BIG is one way to make that happen. 


While I admire Minsky's macro work on instability, his social policies seem to have been driven by a warped Puritan value system that I do not share.   To justify his extremist policies, Minsky resorted to supply side economics and other questionable assumptions that do not hold up to closer examination.

It's admirable to care about poverty and inequality, but there is more than one way to get there.   It's admirable to want to create jobs for the unemployed, but there's more than one way to get there.   I object to narrowing the options down to just one -- the JG -- just because a dead economist with warped values said so.


  1. I've been searching for material related to this subject, not only the papers you mentioned above (one can find them as separate papers, btw), but also about Keynes' views.

    I am yet to reach a definitive conclusion, but based on what I've found so far, I don't think Minsky's general views differ greatly from Keynes'. To the extent that both men disagreed, probably Keynes was, if anything, more conservative.

    Skidelsky had an essay ("Keynes and Social Democracy Today", at Project Syndicate and also at his personal site) where he says:

    "For decades, Keynesianism was associated with social democratic big-government policies. But John Maynard Keynes’s relationship with social democracy is complex. Although he was an architect of core components of social democratic policy – particularly its emphasis on maintaining full employment – he did not subscribe to other key social democratic objectives, such as public ownership or massive expansion of the welfare state."

    Keynes also favoured some limited redistribution, but that was the extent of what should be attempted, in his views.

    So, I am not sure he would have approved of a BIG (or even of a JG).


  2. Thank you for reading my blog.

    Keynes advocated nationalizing the railroads and utilities. While he preferred public works to handouts, Keynes begrudgingly approved the use of "direct subsidies" to poor people. So while I agree that Keynes was a conservative who was trying to save capitalism, I view Keynes as to the left of Minsky, and certainly more pragmatic than Minsky.

    Letter from Keynes to FDR on recommended social policies:

  3. It seems something went wrong and the comment didn't appear.

    You may be right on Keynes' and Minsky's relative political stances (the letter was very interesting and for once I have motive to regret ignoring DeLong)

    Anyway, wouldn't that letter directly contradict Skidelsky's article? I mean, he does say that Keynes "did not subscribe to other key social democratic objectives, such as public ownership".

    Maybe the clue to explain that contradiction is here:

    "Next utilities. There seems to be a deadlock. Neither your policy nor anybody else’s is able to take effect. I think that the litigation by the utilities is senseless and ill-advised. But a great deal of what is alleged against the wickedness of holding companies is surely wide of the mark. It does not draw the right line of division between what should be kept and what discarded. It arises too much out of what is dead and gone. The real criminals have cleared out long ago."

    What was Keynes talking about there?

  4. Yes, I would say that the letter does contradict Lord Skidelsky's claim. Clearly Keynes advocated nationalizing key industries. I'm not sure if it was mentioned in that particular letter, but at various times Keynes also advocated a major program to build public housing.

    I'm not sure what prompted Keynes' remarks on utilities, but at the time he wrote the letter, many American utilities were monopolies with little or no regulation, charging monopolistic prices, and refusing service to rural areas that were not as profitable as urban areas. FDR's programs involved building hydro dams and supply rural customers with cheap electricity, breaking the monopoly of the utilities, and often creating socialistic local electrical "co-ops." Hence the private utilities were some of FDR's fiercest political opponents.

    I currently get my electricity from one of those New Deal "co-ops." It is non-profit, owned by customers rather than investors.

    A little background on FDR's conflicts with utilities at the link:

  5. Don't we have to extend this discussion to acknowledge the views of all members of our diverse culture, NOT just Minsky & Keynes? Reading discussing them alone cannot possibly offer a statistically valid approach to either understanding or managing the changing demands on our culture.

    Replacing All Transient Macro Economics With A 1-Page Forward