Few readers will have heard of Hyman Minsky. However, given the Australian parliament reconvenes in its post-election form tomorrow, it may be time.
Minsky was a prominent economist whose theories, labelled ‘Financial Instability Hypothesis’ were largely ignored until the financial crisis in 2008.
The dominating financial theory before the wake-up of 2008 was that financial markets were generally efficient, reflecting the best information available at any one time.
The financial crisis killed that idea.
Suddenly Minsky’s theory was that markets are driven not by just the available information, but by cycles of greed, fear, and the pursuit of power. (I feel certain that Daniel Kahneman would have agreed)
I wondered if the same cycle could be applied to the Australian body politic and economy.
It seemed an appropriate time for such thoughts, heading as we are into a term of government where the incumbent has a huge majority, and no effective opposition.
So how appropriate is the Minsky cycle to the current political and economic environment the Albanese government faces?
In the aftermath of the election, aware sentiment can change quickly, the Government surprises, and turns risk averse. After all, they now believe they have several terms to ‘get stuff done’, and do not control the Senate. This starts to create frustration in the electorate, as it seems obvious that genuine change is more possible now than for the last 30 years. Only vocal interest groups are scaring the government into inaction. The presence of such hoarding of political capital provides the catalyst for a renewed opposition to effectively attack the inaction on pressing issues.
The cynic in me assumes that none of the challenges we face as a country will be adequately addressed. Politics has devolved into a Ponzi scheme of elaborate lies, misdirects, and inaction. The focus is on gaining and keeping political power for the sake of the power, not for the long-term betterment of the country.
The optimist in me is tempted to listen to the practiced rhetoric of the two leading Labor figures and think: ‘perhaps this time’.
The header is my adaptation of the Minsky cycle reproduced below.
With apologies to Hyman Minsky.HET: Hyman P. Minsky
