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 Tinder dating app isn't just about sex – it's about friendship, too. And sex

The lines between sex, love and friendship are blurrier than ever, as I found out quickly while using the app.

The first time I met someone using Tinder, the free dating app that requires users to swipe left for “no” and right for “yes” before enabling new “matches” to chat, it was an unqualified success. I should probably qualify that. I was newly single after five years in a committed relationship and wasn’t looking for anything more than fun, friendship and, well, who knows. A few weeks earlier I had tried to give my number to a girl in a cinema café in Brixton. I wrote it on a postcard I’d been using as a bookmark. She said she had a boyfriend, but wanted to keep the postcard. I had no date and I lost my page.

My Tinder date was a master’s student from Valencia called Anna (her name wasn’t really Anna, of course, I’m not a sociopath). When I arrived at the appointed meeting place, she told me I was far more handsome IRL (“in real life”) than my pictures suggested. I was flattered and full of praise for the directness of continental Europeans but also thought sadly to myself: “If only the same could be said about you.”

Anna and I became friends, at least for a while. The date wasn’t a success in the traditional sense of leading us into a contract based on exclusivity, an accumulating cache of resentments and a mortgage, but it had put me back in the game (an appropriate metaphor – people speak regularly of “playing” with the app).

According to Sean Rad, the co-founder who launched Tinder in late 2012, the service was invented for people like me. “It was really a way to overcome my own problems,” he told the editor of Cosmopolitan at an event in London last month. “It was weird to me, to start a conversation [with a stranger]. Once I had an introduction I was fine, but it’s that first step. It’s difficult for a lot of people.” After just one outing, I’d learned two fundamental lessons about the world of online dating: pretty much everyone has at least one decent picture of themselves, and meeting women using a so-called hook-up app is seldom straightforwardly about sex.

Although sometimes it is. My second Tinder date took place in Vienna. I met Louisa (ditto, name) outside some notable church or other one evening while visiting on holiday (Tinder tourism being, in my view, a far more compelling way to get to know a place than a cumbersome Lonely Planet guide). We drank cocktails by the Danube and rambled across the city before making the romantic decision to stay awake all night, as she had to leave early the next day to go hiking with friends. It was just like the Richard Linklater movie Before Sunrise – something I said out loud more than a few times as the Aperol Spritzes took their toll.

When we met up in London a few months later, Louisa and I decided to skip the second part of Linklater’s beautiful triptych and fast-track our relationship straight to the third, Before Midnight, which takes place 18 years after the protagonists’ first meet in Vienna, and have begun to discover that they hate each others’ guts.

Which is one of the many hazards of the swiping life: unlike with older, web-based platforms such as Match.com or OkCupid, which require a substantial written profile, Tinder users know relatively little about their prospective mates. All that’s necessary is a Facebook account and a single photograph. University, occupation, a short bio and mutual Facebook “likes” are optional (my bio is made up entirely of emojis: the pizza slice, the dancing lady, the stack of books).

Worse still, you will see people you know on Tinder – that includes colleagues, neighbours and exes – and they will see you. Far more people swipe out of boredom or curiosity than are ever likely to want to meet up, in part because swiping is so brain-corrosively addictive.

While the company is cagey about its user data, we know that Tinder has been downloaded over 100 million times and has produced upwards of 11 billion matches – though the number of people who have made contact will be far lower. It may sound like a lot but the Tinder user-base remains stuck at around the 50 million mark: a self-selecting coterie of mainly urban, reasonably affluent, generally white men and women, mostly aged between 18 and 34.

A new generation of apps – such as Hey! Vina and Skout – is seeking to capitalise on Tinder’s reputation as a portal for sleaze, a charge Sean Rad was keen to deny at the London event. Tinder is working on a new iteration, Tinder Social, for groups of friends who want to hang out with other groups on a night out, rather than dating. This makes sense for a relatively fresh business determined to keep on growing: more people are in relationships than out of them, after all.

After two years of using Tinder, off and on, last weekend I deleted the app. I had been visiting a friend in Sweden, and took it pretty badly when a Tinder date invited me to a terrible nightclub, only to take a few looks at me and bolt without even bothering to fabricate an excuse. But on the plane back to London the next day, a strange thing happened. Before takeoff, the woman sitting beside me started crying. I assumed something bad had happened but she explained that she was terrified of flying. Almost as terrified, it turned out, as I am. We wound up holding hands through a horrific patch of mid-air turbulence, exchanged anecdotes to distract ourselves and even, when we were safely in sight of the ground, a kiss.

She’s in my phone, but as a contact on Facebook rather than an avatar on a dating app. I’ll probably never see her again but who knows. People connect in strange new ways all the time. The lines between sex, love and friendship are blurrier than ever, but you can be sure that if you look closely at the lines, you’ll almost certainly notice the pixels.

Philip Maughan is Assistant Editor at the New Statesman.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad