Monday, May 8, 2017

Minsky and stability

On page 198, Tyler refers to a return of the cyclical perspective to macroeconomics. He seems particularly sympathetic to Minsky's claim that long periods of stability lead to excessive risk taking, which sows the seeds of the next economic/financial crisis. While Tyler doesn't make this specific argument, some people worry that a Fed policy that produces short-term stabilization might do so at the cost of bigger crises down the road.I'm skeptical of the view that stability leads to behavior that makes the economy more unstable in the long run. If that were true, and if bankers were rational, then they would tighten up on loan standards after a long period of stability. I think we all agree that they do not do so. In my view that's because long periods of stability do not increase the risk of future depressions, whereas my opponents would probably cite some behavioral economics research and then argue that bankers don't become more cautious after long periods of stability because they are irrational.

Ok, no flow, no quantization. Folks are not experimenting out there, they are not discovering the new stuff, bad or good.  Distribution gets locked into a time sequence, not enough slop in the bit error function and it is impossible to engage in any structural (requant) reform. It is this subtle difference between undersampling the queue and letting your cart fill a little more or less than usual. Or, going lock step in the same rigid inventory purchases.

The pricing ring is not long term stable, it always generates an accumulation of bit error that requires a requant (surprising interest charges).

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