The start of the financial crisis in 2007 has often been described as a ‘Minsky moment’, named after the late American economist Hyman Minsky. Minsky challenged mainstream theory about the way business cycles worked, and the impact of the financial sector.
Outside the world of academic economics it may be a commonplace cliché to say that ‘the banks caused the crisis,’ but most mainstream models in fact largely ignore banks.
But Minsky placed money, banks and debt at the centre of his view of the economy. And whilst most contemporary economic theory revolves around the concept of equilibrium, Minsky saw the economy as inherently unstable, with periods of stability leading to companies and households taking on ever more levels of debt, creating instability and eventually increasing the risk of a crisis.
That, in a nutshell, is Minsky’s instability hypothesis. Minsky was also a great supporter of job guarantee schemes and Labour’s Future Jobs Fund was inspired by his ideas.
Australian economist Steve Keen had been following debt levels in developed economies with Minsky’s ideas in mind for some years before 2007, and became alarmed at the explosion of private debt. Keen was one of only a handful of economists who saw the crisis coming and warned about it – to no avail.
Over the past few years Steve Keen has been building a powerful economic software package, named Minsky, that will help economists to take into account money and financial institutions when modeling the economy.
Though it will never be possible to predict future developments accurately (this is a sophisticated piece of software, not a crystal ball), such a tool would help experts in economics departments, central banks and treasuries to better understand how a modern capitalist economy works, and hopefully enable them to see potential disasters before it is too late.
Besides taking into account money and banks, Minsky draws on and adapts the ideas of economists such as Wynne Godley, software applications from engineering and the sophisticated mathematical concepts that are used in modeling complex systems such as climate.
Thanks to a grant from the Institute for New Economic Thinking (a think tank founded in the immediate aftermath of the crisis with funding from George Soros), Steve Keen has been able to develop Minsky with the help of computer scientist Russell Standish.
He has now launched a campaign through the crowd funding platform Kickstarter to raise funds to be able to continue working with Russell on the next stage of Minsky.
Minsky is a software package, not a model, so there will be the flexibility to incorporate different views and different circumstances. I personally would love to see a role-playing game, combining Minsky with fantasy, giving everyone a chance to learn about the economy in a fun way.
The aim of this current Kickstarter campaign is to raise a total of $50,000 and anyone can make a contribution. All you need to do is go onto the Kickstarter site:
If you click the ‘Manage Your Pledge’ button on the top right-hand of the page, you can determine your pledge. Once you decide your pledge amount, you will be taken to Amazon.com where you need to confirm the pledge. Only if the total reaches $50,000 by 17 March will the money actually be charged. Steve’s actual ambition is much higher—to raise $1 million to be able to put several person-years of programming time into developing Minsky fully.
Almost all the money will go to developing Minsky, with around 10% being deducted for admin charges by Amazon and Kickstarter. And if your pledge is large enough you will be eligible to receive a free copy of Steve Keen’s book ‘Debunking Economics’ which I would strongly recommend.
Steve Keen was one of the few economists in the world who saw the crisis coming, and his work is an important contribution to developing a new vision for economies could be managed, in the aftermath of the wreckage of the largest financial crisis and the longest downturn since the Great Depression. I strongly encourage you to help with this effort.
Tanweer Ali s a finance lecturer with the State University of New York, currently based in Prague