The cur­rent tur­moil on the Stock Market—and espe­cial­ly the sud­den col­lapse of many once high-flyers—has tak­en a lot of peo­ple by sur­prise.
One per­son who, were he alive today, would­n’t be the least bit sur­prised, is Hyman Min­sky, who pre­dict­ed that events like this would be a reg­u­lar fea­ture of a dereg­u­lat­ed finan­cial sys­tem.
He devel­oped what he called “The Finan­cial Insta­bil­i­ty Hypoth­e­sis”, and any­one who wants to under­stand today’s events needs to know about it.
The fol­low­ing is an extract from an arti­cle by Min­sky in Chal­lenge in 1977—well before even the 1987 Stock Mar­ket Crash—that pro­vides a nut­shell-sized pre­cis of his the­o­ry.

A major issue in this elec­tion cam­paign has been expe­ri­ence. Both par­ties accept that expe­ri­ence as an eco­nom­ic man­ag­er mat­ters, and Howard and Costel­lo regard it as their one trump card.But expe­ri­ence can be mis­lead­ing if it teach­es a rote set of behav­iours, and then cir­cum­stances sud­den­ly change. The coloni­sa­tion of Aus­tralia almost failed because farm­ers used their expe­ri­ence in Eng­land and Ire­land to guide their farm­ing prac­tices in Syd­ney. The colony only sur­vived because ulti­mate­ly it adapt­ed its farm­ing prac­tices to this new land (and because it received some help from Indone­sia) .

Today’s blog was pub­lished as a fea­ture “A lose-lose elec­tion for home buy­ers” by The Age Busi­ness. Click here to down­load this post as a PDF file (with charts).

Both Lib­er­al and Labor hous­ing poli­cies will make Aus­trali­a’s debt and hous­ing afford­abil­i­ty crises worse. The only dif­fer­ence between the two is how much dam­age they will do.Both par­ties have promised tax-advan­taged sav­ings sys­tems that will enable First Home Buy­ers to accu­mu­late larg­er deposits. This will undoubt­ed­ly help them com­pete with oth­er buy­ers in the hous­ing mar­ket, but a lack of com­pe­ti­tion amongst buy­ers isn’t the prob­lem.