Did Hyman Minsky anticipate creative capitalism?

March 25, 2014

Bill Gates has called for a more creative form of Capitalism. The work of Hyman Minsky is being reappraised as relevant after the 2008 financial crisis

Minsky’s ideas were taken up by Paul Krugman, and later by other influential figures such as Janet Yellen, now head of the US Federal Reserve bank. They offer an explanation for the irrationalities of economic boom and bust, though inherent instabilities rather than temporary distortions. As such it relates to the Animal Spirits of John Maynard Keynes.

What is creative capitalism

Some posts ago I asked what is the nature of creative capitalism. The question arose after Bill Gates called for it, without exactly joining up the dots. My best shot was a suggestion that thinkers about capitalism were rewriting the map to deal with the uncertainties of the global economic climate. Under such uncertainties, creativity in thought and action becomes important. Mr Gates suggested that Capitalism needs to refocus its energy on social issues including the environment. Minsky suggests how this might come about.

Minsky’s destabilization hypothesis

An interesting article on the BBC website [March 2014] and a subsequent Radio Four broadcast outline why Minsky’s ideas might be relevant.

It seems that the relatively unknown Minsky has attracted attention recently for his theory of inherent instabilities of financial markets. Stock Market bubbles are inevitable as turbulent flow of water from a high pressure hose or water boiling in a saucepan on a hob through induction heating.

Minsky’s three stages

Minsky describes three stages within the process. The hedge is the stage in which the innate caution of professional investors dominates. The hedge offers possibilities for more risky gains, and the famous animal spirits kick in. In Wall Street jargon, the animal spirits move from those of cautious bears to those of Raging Bulls.

The ghost of Ponzi

Conventional wisdom is that bears and bulls eventually damp down irrational blips in the market. Minsky argues that after the speculative stage comes a fraudulent stage he termed the Ponzi stage. This honours or maybe I should say dishonours the schemes of Charles Ponzi, [1882-1949] the infamous modern inventor of a huge pyramid-selling scam.

To be continued

Regular subscribers should check for updates, which may not be notified by email


Low Status High Security: lessons from the Snowden case

August 19, 2013

By John Keane

The Snowden case has drawn attention to a characteristic of espionage in an electronic age in which high security information is accessible to security-cleared contractors of relatively low status

The phenomenon of electronic espionage by low-status contractors is becoming increasingly discussed after several high-profile leaking stories, which for shorthand sre being labelled as wikileaks. The BBC noted recently that the conditions are well-known, but little has been done to address the problem. The article points to the need to grant contractors high security status. They cite the large consulting firm Booz Allen as having remarkably high numbers for staff cleared for accessing Government information. Of its 25,000 staff, nearly half have security clearance to top secret class information. These are the ranks from which Edward Snowden emerged.

A leadership dilemma

Security analysts recognize that the management of vast information flows requires considerable back-up support. I think of it as a wormhole in the blogosphere through which data can slip. In principle, the dangers can be reduced by greater care in allocating access to highly sensitive data. In practice we have a leadership dilemma of the electronic age.

The author

This post is written by Dr John Keane of Urmston University in Northern England where he teaches and researches into leadership and the history of economics. The views expressed are those of the author.


There’s too much news out there

May 2, 2013

Overwhelmed with newsI’ve been distracted from my customary scan of news sources recently. Now that normal service is being resumed, I have noticed how many leadership stories that are reported every day

This week I would have liked to have followed-up on at least six stories:

The Bangladesh factory tragedy

Hundreds of workers died in a factory building collapse and subsequent fire. The over-simple treatment in the UK focuses on the poor pay and wage conditions of those in the Bangladeshi ‘sweat shops’. [Primark is said to be offering hardship aid to its supplier]. The globalising drive for cheap sources of supply is also being scrutinized. One dilemma to be addressed is the economic benefits of international trade as a country develops.

Krugman and Keynes

Paul Krugman continues to express the neo-Keynesian view that austerity programmes are inadequate for dealing with the exceptional social hardships of a severe recession. He believes the majority of economic commentators are missing the point. Ironically, Keynes was himself frustrated that conventional wisdom of the time seemed unable to appreciate his arguments. Krugman feels pretty much the same, offering this rebuttal of one counter argument. Economies, he says, are not like families. Income and spending are inter-dependent. If we all cut spending our incomes will fall too. He also rejects the idea that this is a leftist spending-spree mentality, but necessary a short-term measure for exceptional economic times.

Alfredo Saenz

Then there was the surprise retirement of Santander chief Alfredo Saenz who is expected to collect a goodbye present of around $100,000,000 rather than cop an investigation into his activities by the Supreme Court .

UKIP

Back in the UK, local elections this week [Thursday May 4th 2012] are seen as a measure of protest votes away from the traditional political parties. The anti-immigration and (even more anti – European Union) party UKIP is tipped to poll well under the leadership of its somewhat unconventional and ebullient Nigel Farage, who is also standing for Parliament in a by-election.

Larry David and his mother

An article by American humourist Larry David looked at how his mother would have reacted to his being arrested for terrorist offenses. It provoked a storm of protests. When told he had confessed she replied “well he probably didn’t want anyone else to suffer.” The article saves me from going any further with an idea I had for a blog which was going to be entitled “every mother is a potential terrorist”.

Reginald D Hunter

Anti-racist comedian Reginald D Hunter is in trouble for using racist language at a Football Association dinner. Or at least I thought it was humour with a political intent, in the tradition of Lenny Bruce.

Coping with overload

This ‘six for the price of one’ blog post is my attempt to cope with information overload. Hope you liked it. Normal service, as they say, may be resumed shortly…


Drugs, the silk road, and new money-laundering systems

April 16, 2013

BitcoinThe market in illegal drugs continues to keep a step ahead of efforts to control it. New technology is already being applied to complement or replace older practices of money laundering

In researching the rise of new technology banking, I came across the rapidly-growing Bit Coin system. It struck me as interesting to those engaged in nefarious operations such as drug trafficking. I was not surprised to learn that the idea had already occurred to others.

According to its own website

Bitcoin is a digital currency, a protocol, and a software that enables instant peer to peer transactions, worldwide payments, low or zero processing fees, and much more.
Bitcoin uses peer to peer technology to operate with no central authority; managing transactions and issuing Bitcoins are carried out collectively by the network. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment systems.

How does Bitcoin work?

The International Business Times offers a nice explanation of how bitcoin works

April 16-17th

Paul Krugman in the International Herald tribute writes of The fallacy of bitbugism. Further insights were provided in a BBC review.


How firing a leader may be explained in Keynesian terms

April 1, 2013

By John Keane

The firing of leaders should be clear evidence of rational decision processes. Sometimes it seems driven by irrational expectations

My example comes from the world of football in England, but it could easily be extended to other business situations.

As Easter approached [March 2013] Premier League battles for survival were heating up. Six clubs were considered most likely to supply the three who would be relegated, with serious loss in income. If a boost to performance could be achieved in the final ten games, financial disaster could be avoided. It is considerably harder for a club to fight its way back, as the relegation to the Championship has considerable consequences on recruitment of new players, sponsorship and match attendances.

On firing a leader

The decision to fire a manager seems to be one primarily taken by a powerful owner, who may or may not be influenced by others such as the manager, and (or so the fans would like to believe) the vocal protests of supporters.

One of the most powerful and wealthy owners, Roman Abramovitch of Chelsea, has a track record of removing managers in search of others he approves of more. At present his choice has already been told he is a stop gap to be replaced at the end of the season by the best manager money can buy. This is somewhat different as Chelsea is also able to buy good enough players to win trophies. They are currently European Champions, but the achievement was not enough to save the last manager from being fired.

The candidates for the chop

Managers facing relegation this year included those at Southampton, Wigan, Aston Villa, Reading, Queens Park Rangers and Sunderland. One of these (QPR) acted earlier in the season and appointed Harry Redknapp, one of the most experienced managers capable of helping ‘the great escape’. Reading, Southampton and Aston Villa pressed the trigger later. In these cases the replacement is not obviously a better manager by track record than the departing one. This is particularly the case for Sunderland, who replaced a manager of considerable prior achievements, with a controversial one with less experience.

These sorts of decisions illustrate the Keynesian view that financial decisions are driven by irrational forces and expectations. Or, as Keynesians like to say, the leaders are left trying to ‘push on a piece of string’ [to obtain supply-side wins] to achieve better results than might otherwise have been produced.


Getting to Norway

December 17, 2012

Oslo City Hall Pipervika ViewThe award of the 2012 Nobel Peace Prize was made in Norway to the institution known as the European Union. The ironies were not lost on Norwegians who repeatedly reject membership of the EU

by Tudor Rickards

The Independent has been one of the few newspapers in the UK supportive of the EU’s vision [if not of all its practices]. However, its view of the Nobel Peace prize award [Monday 10th December 2012] was distinctly on the chilly side. I have made some abbreviations to the following which I hope captures the sense of the original:

Broad smiles bedecked the faces of European Council President, Herman van Rompuy, European Commission President Jose Manuel Barroso and European Parliament President Martin Schulz as they took their seats along with the Nobel Committee chairman, Thorbjorn Jagland, on the podium. Twice [in 1972 and 1994] the country rejected referendums to join the EU hooley. And has Norway been thus left in the economic cold? Has it hell.

The EU chiefs may be in town for the presentation of the Nobel Peace Prize to the European Union, but Norway nonetheless regards it with the sort of suspicion usually reserved for chaps flogging phials of snake-oil from a tatty suitcase. Thanks to oodles of natural resources – petrol, gas and minerals, plus a national mindset which essentially votes into the power the most frugal party that promises to spend the least amount of money – Norway is loaded.

So, given the ongoing knife-fights in Brussels over how to deal with the savage recession which lies like an iron blanket over most (if not all) of the 27 member countries, it’s no wonder that Norwegians want no truck with the EU – although, thanks to various economic agreements, the country enjoys quite a few of its single market trade perks.

Moreover, there are many folks outside Norway who are still scratching their heads over the decision to award the peace prize to the EU. Mr Barroso acknowledged that the current turmoil showed the union was “not fully equipped to deal with a crisis of this magnitude. We do not have all the instruments for a true and genuine economic union … so we need to complete our economic and monetary union”.

A few hours later, a few hundred people gathered in the bitter cold under a banner which read, ‘No Peace Prize For Our Time’, to make a torchlight procession past the hotel where the EU officials were staying. Among them was Oslo woman Elsa Ender, who is one of a group called Grandmothers for Peace.

“We do not think the EU are worthy winners,” she explained. “The Nobel Prize is supposed to be given to those who work for disarmament, but the EU are warmongers”.


Brazil: Economics, White Elephants and Black Swans

August 11, 2010

Brazil is attracting increasing attention for its economic potential in the decades ahead. Think Tanks suggest its future relies on technological innovation. But will its fate be more to do with white elephants and black swans?

A Guardian report [August 2010] outlines an exciting future for Brazil’s economy:

Dr Gilberto leads Brazil’s National Institute for Space Research (Inpe). His claim turns a piece of standard economic theory on its head. Nations develop their economies by moving up the value chain, away from churning out commodities and towards manufacturing, say the textbooks.

China mass manufactures at rock-bottom prices, with the consequence that over the past two decades the cost of manufactured goods has fallen fast, while demand has pushed up the cost of the commodities used to make the goods. This leads Camara to his slogan: “Brazil – the natural knowledge economy”. He describes this as applying knowledge and technology to commodities to boost their value, and reels off examples: biofuels, in which Brazil leads thanks to its sugar cane ethanol and growing biodiesel production; renewable energy, and climate change – Brazil’s Amazon is vital to the planet’s health. “Brazil’s natural knowledge economy offers more opportunities for internal [national] research than our manufacturing industry,”


The Knowledge Economy

A Demos (think-tank) report argued in 2008 that Brazil is a ‘natural knowledge-economy’ where the intertwining of knowledge, skills and innovation with environmental and other natural assets holds the key to competitive advantage. But in Europe, Brazil’s innovation capabilities are even less well understood than those of its ‘BRIC’ counterparts, China and India. This report assesses the prospects for science and technology-based innovation in Brazil over the next ten years. And it suggests how the UK and Europe can scale up collaboration with its new centres of excellence. This report forms part of The Atlas of Ideas, a research programme on the new geography of science and innovation. The project was conducted in partnership with the Centro de Gestão e Estudos Estratégicos (CGEE) in Brazil.

The Atlas of Ideas

According to Demos,

In May 2007, the United Arab Emirates launched a $10bn foundation to create research centres in Arab universities. In Brazil, a consortium of 80 organisations has teamed up to invest $3 billion in biotechnology. In Qatar, a gleaming 2,500 acre ‘Education City’ is now home to international campuses of five of the world’s top universities. Wherever in the world you look, new entrants are reshaping the landscape for science and technology-based innovation. But what do these changes mean? How should policymakers and business leaders respond? And how do we strike the right balance between competition and collaboration? In early 2007, Demos published a series of reports on science and technology-based innovation in China, India and South Korea, and the prospects for closer collaboration with the UK and Europe. The second phase of The Atlas of Ideas included projects on the future of innovation in Brazil, flows of highly skilled migrants to the UK, low carbon innovation in China, and the development of a landmark study of innovation in the Islamic World.

Technological Change, Think Tanks, White Elephants and Black Swans

Forecasting is difficult, as the old joke goes, especially about the future. Forecasters like other humans have blind spots. Politicians seem open to the promise of technology as a silver bullet for desired change. The realities of technological forecasting is that a gulf exists between the potential and the realization of visionary dreams. That has not prevented strategy gurus from offering prescriptions for regional development. The approach has not been without its critics

Experience with large-scale technological projects is that they often become white elephants (expensive and inconvenient and with little practical value). Sometimes exploration is accompanied by dreadful unexpected consequences of the unpredictable (Black Swans).

More Modest Steps into the Future

Steps towards change require multiple more micro-level actions which mobilise natural resources including people. In the UK, the new government pins its hope on a concept labelled The Big Society, which is about devolving power away from centralized government. Liberating creativity of organisations even of societies seems a promising approach. In Europe examples can be found of ways in which students become their own tutors. Business Schools can work with international organisations to support international goals. There are opportunities as well as threats; tigerish gains as well as elephantine blunders to be made.


Follow

Get every new post delivered to your Inbox.

Join 1,594 other followers