What Janet Yellen and Mark Carney could learn from macroeconomist Hyman Minsky

Gordon Brown, as Chancellor in the UK, and the Federal Reserve’s Alan Greenspan, notably, violated Minsky’s ideas - what will the new twin peaks of global finance do differently?

After the cold turkey of Christmas there is a good slice of humble pie being eaten for New Year dessert. One by one, and a little too easily for my liking, the über-bears of the financial system have been falling into line, accepting that things are OK and the bull market for equities can continue. Nouriel Roubini is only the latest voice to turn from a growl to an apologetic whimper. Hugh Henry did his exit stage right, pursued by his own personal bear, before Christmas. Only Marc Faber carries the torch now.

In any event, they are all being consistent with what the American economist Hyman Minsky (1919 - 1996) recognised, which is that investors have a tendency to exaggerate what is happening rather than seek under-valued investments as a home for their money. Most people follow the momentum of current thought and this is what leads to manias, bubbles and financial crises. In other words, financial institutions are by their very nature unstable, mainly because they are inhabited by faulted human beings whose conscious, rational, self is a slave to the subconscious and the chaotic id that powers it. Consequently, they need managing and regulating, actively, and cannot be left to the self-limiting actions of those involved in the financial system, mainly because they are unable to self-limit.

Although he didn’t live to see it, Minsky got a number of notable things right about the interaction between money and the psyche. It is a moot point whether he would have found any pleasure in watching his theories play out in the post-2000 era leading, eventually, to the ignominious collapse of once-useful financial institutions. But his theories have proved better models for what happened than any statistically-based piece of software that I have seen.

Gordon Brown, then Chancellor in the UK, and the Federal Reserve’s Alan Greenspan, notably, violated Minsky’s ideas. Brown advocated "light-touch" regulation (a euphemism for no regulation) while Greenspan looked on helplessly as the Glass-Steagall act (already ineffectual in many people’s eyes) was dismantled in front of him, allowing the walls to come down between commercial banks and securities firms. Brown took the revenues from the financial system and built up state spending. Greenspan had no such ideological or electoral agenda. But when the financial crisis struck all that was left for both of them was to cut interest rates to lower and lower levels while propping up failing financial institutions with unconventional policies like quantitative easing which have now become uncomfortably accommodated and habituated into our lives.

Minsky has powerful followers, not least of which is the soon-to-be Chair of the interest rate-setting Federal Reserve Open Market Committee, Janet Yellen. One of the conclusions of the Minsky approach is that policy makers need to follow "contra-cyclical" policies to take the mania out of the system. In other words, when the good times roll those in charge should be tightening regulation and rules around financial institutions to stop them from experiencing manic boom and bust.

So the Yellen Federal Reserve, like the Mark Carney Bank of England, will be fundamentally different animals from their predecessors. Not for them the macho rate setting and systematic policy making that has characterised the previous 30 years. We should be looking for something more administrative, more touchy-feely and circumstantial, gradualist even. Because if you were going to start placing the regulatory corset around a financial system you wouldn’t do it to this one and you wouldn’t start now, not with the current need for a bit of reckless lending.  And, as a final corollary, given that these are both most likely one-term governors of their institutions, maybe staying for just five years, sponsoring Minsky-esque regulatory change via the carrot of low interest rates means that neither of them may touch interest rates during their entire term of office.

Chair of the National Reserve, Janet Yellen. Photograph: Getty Images.

Head of Fixed Income and Macro, Old Mutual Global Investors

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The economics of outrage: Why you haven't seen the end of Katie Hopkins

Her distasteful tweet may have cost her a job at LBC, but this isn't the last we've seen of Britain's biggest troll. 

Another atrocity, other surge of grief and fear, and there like clockwork was the UK’s biggest troll. Hours after the explosion at the Manchester Arena that killed 22 mostly young and female concert goers, Katie Hopkins weighed in with a very on-brand tweet calling for a “final solution” to the complex issue of terrorism.

She quickly deleted it, replacing the offending phrase with the words “true solution”, but did not tone down the essentially fascist message. Few thought it had been an innocent mistake on the part of someone unaware of the historical connotations of those two words.  And no matter how many urged their fellow web users not to give Hopkins the attention she craved, it still sparked angry tweets, condemnatory news articles and even reports to the police.

Hopkins has lost her presenting job at LBC radio, but she is yet to lose her column at Mail Online, and it’s quite likely she won’t.

Mail Online and its print counterpart The Daily Mail have regularly shown they are prepared to go down the deliberately divisive path Hopkins was signposting. But even if the site's managing editor Martin Clarke was secretly a liberal sandal-wearer, there are also very good economic reasons for Mail Online to stick with her. The extreme and outrageous is great at gaining attention, and attention is what makes money for Mail Online.

It is ironic that Hopkins’s career was initially helped by TV’s attempts to provide balance. Producers could rely on her to provide a counterweight to even the most committed and rational bleeding-heart liberal.

As Patrick Smith, a former media specialist who is currently a senior reporter at BuzzFeed News points out: “It’s very difficult for producers who are legally bound to be balanced, they will sometimes literally have lawyers in the room.”

“That in a way is why some people who are skirting very close or beyond the bounds of taste and decency get on air.”

But while TV may have made Hopkins, it is online where her extreme views perform best.  As digital publishers have learned, the best way to get the shares, clicks and page views that make them money is to provoke an emotional response. And there are few things as good at provoking an emotional response as extreme and outrageous political views.

And in many ways it doesn’t matter whether that response is negative or positive. Those who complain about what Hopkins says are also the ones who draw attention to it – many will read what she writes in order to know exactly why they should hate her.

Of course using outrageous views as a sales tactic is not confined to the web – The Daily Mail prints columns by Sarah Vine for a reason - but the risks of pushing the boundaries of taste and decency are greater in a linear, analogue world. Cancelling a newspaper subscription or changing radio station is a simpler and often longer-lasting act than pledging to never click on a tempting link on Twitter or Facebook. LBC may have had far more to lose from sticking with Hopkins than Mail Online does, and much less to gain. Someone prepared to say what Hopkins says will not be out of work for long. 

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