Last week there was an interesting spat between Brad-de-Long and Steve Keen. DeLong had published a post stating that he a fellow group of New Keynsians/Neo-classicals were:
those who work in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger. That means trusting economists like Paul Krugman, Paul Romer, Gary Gorton, Carmen Reinhart, Ken Rogoff, Raghuram Rajan, Larry Summers, Barry Eichengreen, Olivier Blanchard, and their peers. Just as they got the recent past right, so they are the ones most likely to get the distribution of possible futures right.
Keen replied with some indignation that this group were precisely those who did not predict the Global Financial Crisis, so why not mention some of those who do? Delong in comments described Keen as a ‘splitter’!
Though badly tempered the post was seen by many commentators as an example revisionist historicist. So that rather than the mainstream getting wrong it had got it right, they were the true heirs of Minksy Kindleberger etc. Oh and by the way they really had seen it coming.
Today Brad Delong together with his colleague the great economic historian Barry Eichengreen has republished on Credit Writedowns a peice from Vox which confirms this view. They repeat an exchange
when Martin Wolf, dean of the British financial journalists, challenged then former-US Treasury Secretary Lawrence Summers in 2011 to deny that economists had proven themselves useless in the 2008-9 financial crisis, Summers’s response was that, to the contrary, there was a useful economics. But what was useful for understanding financial crises was to be found not in the academic mainstream of mathematical models festooned with Greek symbols and complex abstract relationships but in the work of the pioneering 19th century financial journalist Walter Bagehot, the 20th-century bubble theorist Hyman Minsky, and “perhaps more still in Kindleberger” Summers was right.
markets can continue to get it wrong for a very, very long time. He girded his position by elaborating and applying the work of Minsky, who had argued that markets pass through cycles characterised first by self-reinforcing boom, next by crash, then by panic, and finally by revulsion and depression. Kindleberger documented the ability of what is now sometimes referred to as the Minsky-Kindleberger framework to explain the behaviour of markets in the late 1920s and early 1930s – behaviour about which economists otherwise might have arguably had little of relevance or value to say.
So are the likes of Summers, DeLong etc. now contrite by embracing the disequilbrium approach of Minksy-Kindleberger? No because the lessons that Delong takes from Kindleberger are solely behavioural ones once assets become overpriced and distressed selling sets in, panic, contagion and the lack of a lender and consumer of last resort.
Kindleberger’s key theoretical contributions related to these behavioural issues at certain stages of the credit cycle. But what the article, and DeLongs whole attempt to claim Minsky et al. as intellectual forebears misses is the basis of that credit cycle in the first instance – endogenous money issued overexhuberently on the basis of speculative prices, what was called in the early 19th C ‘Fictitious Capital’ (see Perelmens excellent pamphlet on its history). The basis of credit cycle theory is endogenous money – and a line of thinkers each buildings on the last Tooke, Macloud, Marx, Tassuig, Hawtry, Fisher, Minsky, Kindleberger and Keen have each sought to explain credit and asset price cycles and subsequent depression and develeraging through this monetary cycle.
Delong therefore cannot pull off a historigraphical sleight of hand by trying to appropriate the results of Kindleberger without adopting the theoretical foundations that led him to his conclusions. Those foundations would require abandonment of the New Keynesian non-monetary, non-credit, equilibrium assumptions of the failed neo-classical paradigm.