Lessons from the past

My attention was recently drawn to an article about the late Hyman Minsky: not a comedian, but an economist, although the line between these two occupations might well be a dotted one.

Minsky died n 1996, and his contribution to this blog, which I am sure he did not predict, is that he appears to have hit upon an accurate description of the cycle of financial instability which, by reason of being a cycle, is currently cycling away.

Minsky's arguments are actually very straightforward, and may well have been influenced by Galbraith's analysis of the Great Crash of 1929, which anyone who is remotely involved in the property market should read, and which is available at the bargain price of nothing from this link. 

Galbraith laid the 1929 crash out in all its astonishing absurdity.  The driver for collapse was the availability of lending on the security of stocks and shares.  As the ownership of shares became more popular, and their price rose with demand, banks "got in on the act", and lent increasing percentages of share prices secured on those stocks, which had the effect of increasing demand yet further until one day; one Tuesday to be precise, the realisation that just because something was used as security for a loan did not mean it was worth anything became all too evident.

So why has this pattern been repeated over and over again? Minsky's explanation was again simplicity itself.  At the start of the cycle, perhaps remembering the last crash, funders and borrowers are cautious, but then they pass into a second phase, where owners of gradually appreciating assets start to use them as security to acquire further such assets; with the gearing of the asset holder increasing throughout this phase, pushing up prices for those assets, and leading to a hysterical and insane expectation that the increases in prices will continue indefinitely.

Minsky referred to this last stage as a Ponzi stage, comparing the movement of funds within this overheated market to Ponzi schemes.

And then... Then the market collapses.  The degree of collapse depends on the inherent, rather than the inflated value, of the underlying asset, which as it is land, which is in genuinely short supply in the UK, does to an extent act as a moderating influence. 

Minsky was not warning, he was describing. And I would suggest we are in the Ponzi stages of a property boom. All the evidence suggests so.  

The clouding of judgement

So we know know, or think we know, that the ill fated Malaysian airlines known to the world as MH370 met its end in the Southern Indian Ocean. Why, we do not have any coherent idea.

But during the 18 days since the flight started, the rumour mills of our imaginative world have been working overtime to feed the idea that there is more to this than something within that aircraft: some hidden and conspiratorial motive that has caused the crash and the deaths of 239 passengers and crew. Even these numbers, 370 and 239 have been etched into the psyche of a generation.

And whilst the men and women of 26 nations have exposed themselves to the risks of one of the most intensive searches in history, the relatives of those on board have festered their hopes into suspicions, their grief into anger, encouraged by the media; and without a single voice, so far as I can see, saying that sympathy for those who have suffered loss should not cloud judgement; that reaction to any event should be proportionate.

In those 18 days: just under a twentieth of a year; some 60,000 people have died on the roads of our muddled planet, over 3,000 in China alone. Each of those casualties left a hole in the lives of others: a hole just as profound as that felt by the relatives of the travellers on this aircraft.  And yet there are no clamourings for justice, for concealed meaning to be revealed. Men and women are getting behind the wheels of their cars unaffected by these grim statistics.  

My argument is simply that proportionality is a necessity when dealing with any event.  When those personally involved influence decisions there is distortion. It is a lesson as valid for dealing with disaster and crisis management as it is for the execution of justice. And it is in that latter connection that it is of most interest to me. The historical basis of our legal system has always been the maintenance of the "peace"; this is the wellspring of justice: for without the rule of law, there is only "might is right".  That principle requires that legal decisions are made consistently, and not so as t0 favour those who shout loudest.  

When this principle is ignored or bypassed, injustice occurs; and the weak will generally be those who suffer most, as Brecht put it: 

There are some that are in the darkness

And others in the light

And those you see are in that light

But those in the dark stay out of sight