More Giveaways to Capitalist Finance? It's High Time To Change the Objective
Channel: GPEnewsdocs
Date: 2020-08-16

Jan Kregel explains the fundamental problem with the economic system is its focus on providing finance to investors. Hyman Minksy, who understood that financial instability is inherent to capitalism, proposed changing the economy's objective to employment. Originally published at https://www.youtube.com/watch?v=wr_hM2UWwvI

TRANSCRIPT

JAN KREGEL: One of the things I think that people find very disconcerting in trying to interpret his work is that he has some very basic fundamental principles that he continues to use to analyze the capitalist system. But at the same time is always willing to stress that capitalism is a changing phenomena in which the changing financial structure has an impact on its performance.

And he was always very careful to identify the way institutions and that what he called the financial structure changed over time. And how this would change the way the system satisfied the basic requirements which he thought the capitalist system should produce. And that was to provide, or the financial structure should produce under capitalism, the financing of a reasonably stable productive structure in which it provided employment for the entire population and provided the possibility for maximizing the use of the available resources in the economy.

So this was always the thing which was at the back of his mind but the changes in the financial structure were something which were for him very, very, very, very important.

LYNN FRIES: Hello & welcome. I’m Lynn Fries producer of Global Political Economy or GPEnewsdocs. And that opening clip was from a commentary by Jan Kregel on the work of Hyman Minsky.

Minksy argued that the difficulty with capitalist governments is that their objective is simply economic growth by means of increased profitability that generates investment. And that by doing that, you create a financial system that itself produces crises. Minsky argued the way around that is to change the objective. That capitalist governments should have employment as their objective instead of growth by investment.

My guest, Jan Kregel is Director of Research at the Levy Economics Institute of Bard College and Heads the Institute’s ongoing research program in Monetary Policy and Financial Structure that Hyman Minsky was responsible for establishing.

Jan Kregel, welcome

JAN KREGEL: Pleased to be here.

FRIES: Jan, you recommend looking at the work of Hyman Minsky to understand crises under capitalism. The policy, for example, in the US government response in the 2007-2008 financial crisis and its aftermath, the Great Recession, you say moved in the opposite direction of what Minsky had prescribed -the rest is history, deepening unemployment and inequality. And that current COVID-19 crisis management is moving in the same direction and has devastating implications.

Jan, so we can all better understand crises under capitalism and a way forward take us through what you think are key takeaways from the work of Hyman Minsky. Like why just as the Federal Reserve acts as Lender of Last Resort to bail out too big and too interconnected to fail banks, the government should act as Employer of Last Resort to bail out households.

KREGEL: Well, Hy in the initial analysis of capitalism made the very astute representation that capitalism is a system in which the control and the operation of capital assets are determined by the ability to borrow to control those assets. So that it’s always the way the borrowing takes place in the system and the way the liabilities that are issued, in order to finance the acquisition of capital, [that] are crucial components of the ability of the system to produce full employment and to produce maximal well-being for the population.

So if we can simplify and say that under the postwar golden age period, you had a financial structure which was primarily set up to finance the acquisition of productive capital assets. Those productive capital assets then provided employment and they provided output.

Now that particular system Minsky criticized because its success required extremely high levels of investment in order to generate the growth in incomes that would produce increasing employment.

And the problem with this was what? Well, the problem was that the more liabilities you have to issue in order to finance capital equipment, the greater the instability that you produce in the system.

Now, where does that instability come from? 

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