I am currently writing up an article on what Minsky added to Keynes an onwards to whether this is an up to date theoretical framework ready for use in the 21st century. In a nutshell, Keynes explained that output, inflation and unemployment are driven by changes in investment, which is itself driven by changes in interest rates and expected yields. Minsky adds a financial structure – the liability side – to this part of Keynes’s theory.
Both have in common the idea that economics is not a discipline free of value judgments that are mostly prior to theorizing. Keynes thought unemployment a “bad”, and especially mass unemployment. His idea was to add social stability to society by keeping everybody willing to work employed. The modern welfare state developed, financed and run by big government and with the support of a big central bank that ensured the government does not run out of money. Then came neoliberalism and all of this was declared to be bonkers and the cause for inflation, unemployment and low economic growth. After enduring three decades and a half of neoliberal policies one has to conclude that we now have even lower economic growth rates, problems of deflation and not inflation, and a skewed labour market with lots of unemployment, low-paid and part-time jobs and historically high levels of inequality.
In order to return to the decades of social peace that Western societies enjoyed in the 1950s up until the 70s, it is useful to reread some of that periods thinker. Among the greatest in economics is Hyman Minsky. This excerpt is from the last paper published by Hyman Minsky (link):
The aim of policy is to assure that the economic prerequisites for sustaining the civil and civilized standards of an open liberal society exists. If amplified, uncertainty and extremes in income maldistribution and social inequality attenuate the economic underpinnings of democracy, then the market behavior that creates these conditions have to be constrained. If it is necessary to give up a bit on market efficiency or aggregate income, in order to contain democracy threatening uncertainty, then, so be it. In particular, there is a need to supplement private incomes with socially provided incomes, so that civility and civic responsibility are promoted.
If we want to go forward, then we have to change course. Both in the real world, where policy makers, press and the lay public have to understand the recent history as one of decline and not progress. Of course it is up to some to persuade the others that we have to reinterpret our recent past, and that will take time. However, letting things continue without implementing change on a larger scale will not lead to any improvement in economic or social terms.
One issue where what Minsky wrote in the paragraph applies is the euro zone. How can people expect Greeks or Spanish or Irish or other people to behave decently if they have sky-high unemployment, low-paid jobs (after having had much better-paid ones), a lack of power in their relation to employers, etc.? The euro zone is socially unstable, and it needs to be fixed. Whether it is still possible to do so the future might show.