The Boston Globe today carries an op-ed by Stephen Mihm, a history professor at the University of Georgia, highlighting the aptness of Hyman Minsky's financial instability hypothesis:
Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse."But does Minsky’s work offer us any practical help?" Mihm asks. Part of the solution, he continues, is to have the Federal Reserve act as a lender of last resort to distressed firms. Nothing new there. But the other part is more radical: to have the government act as employer of last resort, guaranteeing a job to anyone who wanted one.
In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. "Instability," he wrote, "is an inherent and inescapable flaw of capitalism."
The political objections to the latter policy would seem at first glance to be insurmountable. But hold on a minute. A few years ago, the "house-price bubble" only existed in the fevered rantings of a smattering of chronic doomsayers. Today, who has heard of the "youth jobs crisis"? No one. Crisis? What crisis? Here's the chart again. Read it and weep.
Digging deeper into the data, it gets worse. Long story short: youth employment has been COLLAPSING since the bursting of the dot.com bubble in 2000. There was no recovery for youth employment during the last "boom" -- only a leveling off. In the context of the youth employment crisis -- which will not be solved by a traditional bastard Keynesian fiscal-spending stimulus -- a far-reaching government jobs program might become politically feasible. But would it be economically feasible? Sandwichman doubts it. (to be continued...)