The St. Louis Cardinals and the Asian Crisis

The Asian financial crisis is doubly unfortunate, first of all because it has set income and wealth levels in these countries back some ten years. But, it is also unfortunate because had Hy Minsky been alive to point out to policy makers that they were dealing with a debt deflation the worst excesses might have been prevented. Those of you who knew Hy might instantly object that Hy knew virtually nothing about Asia. But, that has not stopped hundreds of our colleagues from mistaking what went wrong in Asia. And in Hy's case it probably would not have made much difference. Hy only claimed to be an expert in one thing — the St. Louis Cardinals. But, I think we can make a good guess at what he would have said about the crisis, for it was a clear case of the Minsky instability hypothesis.

As you may remember, Hy spent a good deal of time explaining why “It”, that is, the Great Depression, Can't Happen Again. But, in the case of Asia it did. And this is also a lesson for why it might happen again, outside the Far East. First, Hy insisted on the beneficial impact of Big Government in providing a floor under aggregate demand. Free falls in asset prices could not happen if there was a guaranteed floor under incomes.