Monday, March 8, 2010

Are We a Minsky-Jones Economy?

The way you get famous is to make predictions about the future that people find outlandish, and then have them confirmed by reality.

In this case, Arnold Kling of Econlog asserts that if we are in a Minsky-Jones setting, that the economy is poised to add a lot of jobs soon.

Hyman Minsky was a somewhat discredited macroeconomist – I studied a little bit of his stuff in 1983. His basic idea was that bubbles in financial markets were to be expected, and that when they popped we’d have bad recessions. It sounds good in words, but it isn’t so easy to write out the math of how that works (remember, we use math to clarify whether hard ideas are good, or just confused). After the Great Recession, Minsky’s ideas are trendy again.

Garett Jones is an economist at George Mason University. His thesis is that firms increase employment because they want to be capable of increasing output along new dimensions (e.g., different goods, different markets).

Neither of these predictions are typical right now. If they’re right, Kling is on to something that we should pay attention to.

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