Unless we understand what it is that leads to economic and financial instability, we cannot prescribe -- make policy -- to modify or eliminate it. Identifying a phenomenon is not enough; we need a theory that makes instability a normal result in our economy and gives us handles to control it.
Interpretation
Understanding the root causes of economic instability is essential for creating effective policies to manage it.
Hyman Minsky emphasizes the importance of not just identifying economic and financial instability, but also understanding the underlying theories that explain why such instability occurs in the economy. Without this deeper comprehension, any policies aimed at controlling or mitigating instability will be ineffective, as they would lack the necessary foundation to understand the mechanisms at play.
In practice
In a discussion about the 2008 financial crisis during a seminar on economic theories.
What Wall Street and credit card companies are doing is really not much different from what gangsters and loan sharks do who make predatory loans. While the bankers wear three-piece suits and don't break the knee caps of those who can't pay back, they still are destroying people's lives.
The first step to prescribing the right medicine is to recognize the cause of the illness. And, when it comes to what is ailing the global economy, extreme monetary easing has been more cause than cure. The sooner we recognize that, the stronger and more sustainable the global economic recovery will be.
Socialism failed because it couldn't tell the economic truth. Capitalism may fail because it couldn't tell the ecological truth.
Private fortunes, in the present state of our circulation, are at the mercy of those self-created money lenders, and are prostrated by the floods of nominal money with which their avarice deluges us.
No matter what anyone may say about making the rich and the corporations pay the taxes, in the end they come out of the people who toil. It is your fellow workers who are ordered to work for the Government, every time an appropriation bill is passed. The people pay the expense of government, often many times over, in the increased cost of living. I want taxes to be less, that the people may have more.
War can really cause no economic boom, at least not directly, since an increase in wealth never does result from destruction of goods.
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