The Levy Economics Institute of Bard College published a volume of Hyman P. Minsky's articles under the title: Ending Poverty: Jobs Not Welfare in 2013. Minsky's analysis of financial instability is well-known, particularly after the financial crisis. This volume was published to highlight one of Minsky's other concerns, which was ending poverty via a high-pressure job market. Although the first article within the book was first published almost 50 years ago, the writings are still relevant.
The book features a preface by Dimitri B. Papadimitriou, and an introduction by L. Randall Wray. They both collaborated with Hyman Minsky, with Professor Wray being a doctorate student of his.
The chapters contained in the book are as follows:
- The role of employment policy (1965).
- Effects of shifts of aggregate demand upon income distribution (1968).
- Policy and poverty (1969).
- The macroeconomics of a negative income tax (1969).
- Where the American economy - and economists - went wrong (1972).
- The poverty of economic policy (1975).
- Full employment and economic growth as the objective of economic policy: some thoughts on the limits of capitalism (1994).
As the dates indicate, most articles were written during the War on Poverty. Some were previously published. As hinted by some of the chapter titles, Minsky viewed the War on Poverty as being a predictable failure.
I read the electronic version of the book on the Kindle. There were a few minor typographical glitches in that version.
Many of my readers are interested in the analysis of the economy and the financial markets. If this describes you, and you are not familiar with Hyman Minsky's work, it might be an idea to start with other books of his that focus more on financial instability. For example, Stabilizing an Unstable Economy, or his summary of Keynes. This book is focused tightly on the labor market and antipoverty policies. The analysis is less "Minsky-an" (assuming that is a word) than those other books.
But even if your only interest in economics is in the context of the financial markets, this book is also interesting. The distribution of income in the economy is not just a question of justice and politics, it also affects economic performance. The current sluggish equilibrium we are in now reflects the lack of growth of income amongst the households at the bottom end of the income distribution. Assuming that high corporate profits would lead to strong growth and higher bond yields was a costly error this cycle.
Additionally, Minksy's analysis of the root causes of inflation is interesting for a fixed income analyst. The only thing that will break Treasury yields decisively higher is a structural change in inflation performance. We need to look at historical episodes to see the causes for previous structural breaks. Explanations of the rise in inflation in the 1960s and 1970s based solely upon the stance of monetary policy appear unconvincing (especially in light of the current episode of extended negative real policy rates), whereas Minsky's analysis looks to be much sounder.
"Keynesian" Economics Is Complex
One potential challenge for a reader who is unfamiliar with Minsky is his complicated relationship with "Keynesian" economics. Minsky viewed himself as a follower of Keynes' theories, but he was critical of the "Keynesian" economists who formulated policies in the 1960s. I have not looked at the historical literature in enough detail to enable to draw a firm line between his and their theoretical views. But in the context of the labour market articles within this volume, it appears that the differences largely revolve around policy implementation.
All of the policy instruments have a "what kind" as well as "how much" dimensions. Proper attention to the "what kind" is necessary in using monetary - fiscal measures, and the "what kind" should be determined in the light of the contribution it makes to the war against poverty.
As a result, some of Minsky's views might come as a surprise to modern readers, as he is not stereotypically "liberal" (following the modern American usage of that term) despite his Keynesian sympathies. For example, he criticizes food stamps as being inflationary. (Food stamps have been renamed as the SNAP programme.) He even sounds like an internet Austrian when he refers to them as being "funny money".
He agreed with the Keynesian analysis of aggregate demand management in the context of a return from a recession. The preferred techniques of stimulating demand have not really changed since the 1960s, being tax cuts, investment and tax incentives, transfer payments and military spending. These policy levers will reduce the unemployment rate after a recession. But once the economy has returned to a steady growth path, they create an inflationary bias.
Labour Market Divergence
The use of too-broad aggregates is often a key weakness of mainstream economics. Minsky viewed the divergence between low wage and high wage workers as being a critical part of the analysis of the labor market. He uses a two-sector model developed by Baumol to illustrate his thinking. Demand management techniques tend to favor high wage sectors. And so stimulus tends to be dissipated in inflation without doing very much to help the poor.
He showed that the reduction in poverty in the 1960s was largely the result of a decrease in the unemployment rate, but at the same time wage inequality increased. The rapidly increasing wages of highly paid workers fueled the inflation that made the existing policy mix politically toxic.
His view was that poverty can only be effectively fought by policies that focused only on job creation for the less well-off. The political challenge is that if you raise wages at the bottom of the distribution, you need to contain wage increases - and profit income - at the top of the distribution in order to contain demand. Otherwise the resulting inflation could cancel out your policy initiatives.
He felt that this was a problem that could be dealt with. Any rise in the price level as a result of raising wages at the bottom of the distribution should only be a one-off shock. The association of persistent inflation with a low unemployment rate was an accident of history. As he notes,
In the first place, and the only type of tight labor market that has ever been observed in the United States is the transitional type. We moved tightness and back away. We have never observed the results of moving to a tight labor market and staying there.
The most effective policy he saw would be for the government to act as the employer of last resort, which was the policy thrust taken in the Great Depression but was abandoned in favour of transfer payments (welfare, unemployment insurance). Modern Monetary Theory has adopted a policy prescription of a job guarantee, and so his analysis has been extended by others.
He rejected the idea that unemployment is the fault of the unemployed, and so we should change them. Training people for non-existent jobs is pointless, but it remains the preferred approach amongst policy makers. As he states,
However, the objective is clear: is to take the labor force as it is [my emphasis added] and make sure that fitting jobs are available. Instead of the demand for the low-wage worker tracking down from the demand for the high-wage worker, such a policy to result in increments of demand for present high-wage workers "bubbling up" from the demand for low-wage workers.
The articles in this volume remain surprisingly relevant. This appears to be a reflection of the lack of progress in labour market policy. The indications of age appear in a few dated political references (many of which are explained in footnotes), as well as some shifts in fashion in terminology (he refers to GNP while modern writers prefer to use GDP).
But some things have changed. One obvious difference is that policy makers have largely given up talking about fighting against poverty. He also refers to the no-longer existent problem of the gold standard. His excellent summary of that issue:
The solution to the gold standard barrier is simple: get rid of the gold standard.
Modern Monetary Theory inherited his view that policy makers should not stymie domestic policy in order to preserve the external value of the currency. This is a departure from some other schools of post-Keynesian thought, where there remains an attachment to fixed foreign exchange regimes.
One thing that I find that distinguishes Minsky from some more recent discussion about inequality was his concern for political feasibility. Policies are not implemented just to make a gesture; they have to have a reasonable chance of meeting their stated objectives. And there has to be some benefit to non-poor households from anti-poverty measures. Pure transfer payments and highly redistributive taxation proved to be politically unsustainable. Transfer payment mechanisms within the welfare state have ended up largely disguised as something else. For example, government pensions are not typically analysed as if they were pay-as-you-go schemes, even though that is what they really are. Since people believe these pensions are "paid for", they remain politically untouchable (which shows the political shrewdness of the politicians that created them).
In his view, workers who take part in government guaranteed jobs would supply public goods, which they would not do if they just received unconditional transfer payments. The tilt of policy makers then and now is to attach little value to such public goods; instead the objective is to increase measured GDP. Providing public goods, such as safe public parks, raises the "quality of living" (public welfare) without pressing on resource constraints. The political problem with this strategy is that rich households do not take advantage of such public goods, limiting the potential political coalition that will support such a programme.
This book is less distinctive than Minsky's other works, but it provides a non-standard analysis of the developments in the 1960s and 1970s. The fact that the book is still highly relevant provides a cautionary tale about the importance of building coalitions to support reforms.