Ponzi & UBIK
by Jeanne aka JStor on May 3, 2009
Some people have names for their future kids. I have names for my future dogs.
One is UBIK, after Phillip K. Dick’s masterpiece. The other name I picked is Ponzi in honor of Hyman Minsky, one of my favorite economists. After Obamanomics, Ponzi has become THE buzzword for anyone discussing the economy. It irks me so.
“The Ponzi Workshop”
Last week, I read this headline in the Book section of the NYT and thought “Finally, someone wrote a take on Minsky and our current environment.” I couldn’t have been more wrong. The article had NOTHING to do with Minsky’s Financial Instability Hypothesis, crony capitalism, or a (valid) pyramid scheme (everyone’s favorite/easiest example). It was just a catchphrase for some sucker (me) to get swooped up in. GRRRRR.
Granted, you probably don’t have the same attachment to Minsky and his work. His work expanded (and wrote an AWESOME book) on John Maynard Keynes, and in his own right, I’d like to think of him as a forefather to Roubini, Krugman, Baker, and Wray. It’s too bad that no one has given his just due. Yes, I get it; not everyone is going to get the Minsky-Ponzi connection, but at the very least learn what Ponzi really means before using it. Save yourself from the embarrassment.
Tags: Hyman Minsky, John Maynard Keynes, Phillip K. Dick
Perpetually increasing rent is the Ponzi Scheme derivative of Capitalism. Labor wages are forced to increase to pay for rising rents. The problem is that land (rent) and labor (time) is scarce (Ricardo Rent Theory) and so the cycle continues (Marx).
We must change the inputs in order to alter the outputs to thwart the ponzi scheme.
In a progressive economy, where capital is growing and real things are getting cheaper and more plentiful (Walrus Final Equilibrium Theory), the natural resource inputs must be air, water and light (Baptiste-Say), as opposed to scarce land; and human resources must be innovation, as opposed to scarce labor time.
Human innovation and Air, Water & Light are infinite in their utility value. Their product is education. It is time that we learned the science and art of economics, which is based on the balance between humans and nature.
Our economy is always searching for that balance, which is why we experience economic cycles. In the end, the balance will inevitably find itself with a stable or fixed rent costs.
I’m not sure I agree with Pluranomics on this one… I don’t see the analogy from capitalism to Ponzi in the extraction of rising rents (however they are conceived).
The Ponzi scheme by itself is supposed to collapse, in fact the intention is to build it up until it collapses and the man at the top can run away with the most money. For all practical purposes, capitalism was never set up to collapse, quite the contrary… If you see the spiralling rent costs as building up a tendency to collapse I understand your reference to Marx, but much beyond that I am unsure about the rest of your comment.
My personal favourite from the Minsky archive would be the idea that “Stability is Unstable”… from there we can learn a lot – a lot more than the stasis that is the supposed long term equilibrium…
“The apparently greater rent or profit of some other kind, is only interest on a greater expense” – Adam Smith.
Sounds a lot like our current economy as we print more paper (greater expense) and keep our rates real low to grow GDP at any cost. If growing GDP is our goal, then Ponzi scheme is our game. This is the same economic system that doesn’t include food and energy when calculating Core CPI.
Benjamin, in direct reference to your well crafted response, the guy that runs away with the most money at the top is the one that sold his real estate or corporate stock at the peak of the pricing cycle (Spring 2007). He took his money and ran, as did many owners before him during the Ponzi scheme, boom-bust cycle.
As a private equity investor in hotels and other real estate deals for many years, I witnessed the ponzi-scheme mentality of rising hotel rates in conjunction with poorer product and service. We would often refer to the strategy as the “Greater Fool Theory” or the next buyer as “Dumb Money”.
Look at NYC, with its rents so high, doesn’t it feel like it could just topple over like a Maddoff Ponzi-scheme any day. How can it continue to attract more worker bees at such high rent costs. Has it not happened time and time again throughout history? Could we not learn from such events. Again, I say Ponzi-scheme.
So what if the system was actually set up to fail, and you are just so economically ignorant that you choose to continue to play; and then when confronted with the possibility that such increasing rents always do end in collapse, you negate it by resting on Capitalism’s intention – “For all practical purposes, Capitalism was never set up to collapse”. Should we not thoroughly question its ever-rising cost structure of rent.
With regards to stability, I do agree that it is certainly unstable in reality, but the closer we get to it, the more stable we do certainly become. However, because economic stability is dynamic and not static, it must be analyzed as such. For example, if education and renewable energy were growing, and healthy food and shelter was plentiful and multiplying; would such increasing stability still be unstable as Minsky writes. In reality, how could that be?
Walrus wrote extensively about such a progressive state. For although he believed he had mathematically found Final Equilibrium, it was only the dynamic progressive state that he hoped to achieve in reality. For the progressive state is sustainable and the retrogressive state is not. In economics, only sustainability is stable.