Stability is Destabilizing

By Randall Wray - December 16, 2008, 7:28PM

I do not think that Paul Krugman should apologize for recognizing the canary in the coal mine back in 1997-98. Hyman Minsky saw this coming as early as the late 1950s. To the extent that we really did have a "great moderation", it would have fueled the longer-run transition toward fragility that had been developing over the entire post-war period. Indeed, 1996 saw for the first time ever persistent private sector deficit spending (taken as a whole, American firms and households were spending more than their incomes). This continued without let-up through to 2008 (with a brief respite during the depths of the Bush recession). So I do think there was something to the claims about a "great moderation"--in that there was an absence of fear that helped to generate debt-fueled bubble after debt-fueled bubble--although those promulgating these claims never understood the true ramifications.