The Filter^: Minsky and the Austrians

I've mentioned before that Macroeconomics is a trialogue (here and here). I've just finished reading 'The Origin of Financial Crises' by George Cooper and recommend it heavily. He's an investment banker and the narrative reflects that: sharp, erudite, punchy. His main thesis is that the Efficient Market Hypothesis is severley flawed (largely on mathematical grounds, such as an assumption of Normal distributions) but economist's predisposition towards it creates an intellectual contradiction. He then outlines Minsky's Financial Instability Hypothesis as an alternative, consistent view.

The key weakness in his argument is his inability to distinguish between those economists who *do* have a logically valid theory of macroeconomic stability (and thus oppose fiat-currency) and those who don't. He cites Ron Paul but makes no reference to Mises or Hayek's work on trade cycles, or indeed point out that the crux of Keynes' probability theory - 'Knightian Uncertainty' - is inherently Austrian. Thus it's quite possible to believe in fat tails (such as Tukey distributions), radical uncertainty, self-fulfilling prophecies, feedback mechanisms, institutuional rigidities - but without having to accept the inherent volatility of a capitalist system. I agreed 100% with the majority of the argument, but cannot grasp how the conclusions follow!

By contrast, You Not Sneaky! has a delightful explosition of the relationship between Minsky and the Austrians. The majority of the economics profession are scrabbling around the heterodox schools to try to make sense of a crises that conventional models cannot explain. If the result is a greater emphasis on Austrian and post-Keynesian theories then fantastic (and we do need to borrow aspects of both to explain the full situation). But don't be duped into thinking that there's only one path away from Neoclassicism.