Economy – Crisbie Coach

Exploring the Minsky Moment: Lessons from a Very Funny Coyote and Financial Instability

In the middle of a desert, a somewhat foolish coyote chases after a remarkably cunning bird, their pursuit escalating to breakneck speeds.

Then, abruptly, the bird halts at the edge of a precipice. Yet, the coyote, driven by instinct, continues its sprint heedlessly until it comprehends the futility of its strides – it finds itself suspended in mid-air.

This iconic scene is not merely the antics of Bee Beep and the coyote; it encapsulates a profound economic theory: the hypothesis of financial instability.

Hyman Minsky posited that within every period of economic prosperity lies the seeds of a future crisis. How so? The explanation is deceptively simple. During times of prosperity, economic agents — be they households, businesses, or the state — act with optimism. They borrow funds to fuel projects, investments, and expansion.

Amidst this optimistic climate, investors embrace higher risks; banks extend credit more liberally, often overlooking the perils of repayment. Minsky termed this phenomenon the “paradox of tranquility.”

However, as the economy becomes increasingly dependent on credit, ominous signs emerge: unemployment rises, economic growth falters, incomes shrink, and repayment becomes arduous. Yet, economic actors persist in their illusion of stability, akin to the hapless coyote suspended in mid-air.

A mere whisper of adversity can catalyze the “Minsky moment”: a sudden awakening to the perils of excess. Panic ensues as the realization dawns that risks are untenable, debts are insurmountable, and credit dries up.

The result? A systemic crisis: the coyote, too preoccupied to grasp its impending fall, plunges into the abyss. Such is the saga of financial instability in the real world.

Now, reflect for a moment: have you ever experienced a Minsky moment in your life?

As we ponder the parallels between the whimsical pursuits of cartoon characters and the sobering realities of economic theory, let us heed the lessons embedded within. Let us strive for prudence, resilience, and foresight in navigating the tumultuous landscapes of finance and life.

In a world where folly and wisdom often converge, let us endeavor to discern the difference and chart a course toward sustainable prosperity.

Are you prepared for your Minsky moment? Embrace the challenge, for within it lies the opportunity for growth, resilience, and renewal.

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Local Wonders: Why Domestic Travel Should Be Your Next Adventure

Are you ready to embark on a journey without crossing borders? Let’s delve into some reasons why staying local for your next vacation might just be the enriching experience you’re seeking.

Rediscovering Home

We often overlook the gems nestled within our own country. Each corner holds its own charm, from serene landscapes to vibrant cultural hubs. By opting for domestic travel, you unlock the door to a world waiting to be explored right at your doorstep.

Supporting Your Economy, One Trip at a Time

Amidst the ebb and flow of economic challenges, it’s always a good time to bolster local businesses and tourism. Your choice to explore your homeland isn’t just about sightseeing—it’s a powerful vote of confidence in your nation’s economy. Every cent spent on local adventures reverberates through communities, sustaining livelihoods and fostering growth.

A Wealth of Experiences

Forget the hefty price tags of international escapades. Domestic travel opens the door to a plethora of affordable adventures, allowing you to indulge in frequent getaways without draining your savings. By opting for mini-trips over grand voyages, you can savor a multitude of experiences while keeping your budget in check. And you help the environment.

Unveiling Hidden Treasures

Delve into the annals of your country’s history and heritage as you traverse its landscapes. From ancient landmarks to storied monuments, every destination holds a narrative waiting to be unearthed. Through domestic travel, you not only gain insights into your nation’s past but also forge a deeper connection with its cultural legacy.

Seamless Exploration, No Translation Required

Bid farewell to language barriers and translation woes. One of the perks of staying local is the comfort of navigating familiar terrain, where communication flows effortlessly and directions are easily deciphered. Embrace the freedom to explore without linguistic constraints, immersing yourself fully in the beauty of your surroundings.

Let your next adventure be a testament to the splendor that lies just beyond your doorstep.

Will you answer the call of domestic travel this season?

Bee Beep or the Paradox of Tranquillity

In the middle of the desert, a somewhat stupid coyote runs after a very clever bird. The two animals go at high speed.

Suddenly, the bird stops in front of a precipice. The coyote, on the other hand, continues to run without looking until it realizes it is running in the air.

This scene is a classic of Bee Beep and the coyote.

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But it is also the perfect illustration of a very serious economic theory: the hypothesis of financial instability.

According to Hyman Minsky, all periods of economic prosperity contain the elements of a future crisis. Like what? It is simple. When all goes well, economic agents (households, businesses, the State) are trustful and borrow money to carry out projects, invest, and develop activities.

In this good environment, investors risk more; banks lend money more easily, without paying too much attention to the danger of not being repaid. Minsky calls this the “paradox of tranquillity”.

However, at some point, the whole economy lives on credit. It then happens that other, more worrying phenomena arise: unemployment, slowdown in activities, lower income, and difficulty in repaying. Despite this, economic agents continue to behave as if nothing had happened. Just like when the poor coyote runs in the air!

Some bad news are enough to trigger the “Minsky moment“: everyone wakes up suddenly and gets scared. We realize that risks can no longer be taken, loans cannot be repaid, and banks stop lending money.

It is the general crisis: the coyote is too busy to realize it is about to fall on deaf ears. And it is too late to avoid to fall. The same happens in the real world.

And what about you, has it ever happen to you to live a Minsky moment?

Di شہاب – Opera propria, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=44752971

Why Travelling Locally?

Travelling abroad is nice. But do you really need to cross a border to enjoy you holidays? I am not sure about it. Every country has unique sites, cultures and heritage.

Stay local. Especially in our times, after the COVID-19 outbreak, we need to support our economy. Economy needs support right now. When being a tourist in your own country you’re actively supporting your own economy. All the money you spend boosts tourism revenue and helps out local businesses.

Save money. A big trip can be quite costly, so why not spend it lots of mini trips? Save on flights and accommodation and use the extra money on more fun activities.

Learn more about your country. Every country has their own history and heritage. With domestic travel you actually might pick up a thing or two. You’ll be able to learn a lot and who knows, gain a deeper connection with your homeland.

Don’t worry about the language. Good thing with staying local is that you don’t have to worry about getting lost in translation.

What do you think about staying local this summer?

Salt from the Ocean

India, April 6, 1930. Under a hot sun, a fatigued crowd arrives on a beach. An old man goes to the sea to get water.

The man is Mohandas Gandhi. He is at the head of a peaceful revolt against the occupation of the British. With his followers he traveled about 400 km on foot to get to the sea. Not for swimming, but for salt.

At the time, the British forbade Indians to collect salt. Only the colonial state had the right to collect and sell it. The Indians were therefore obliged to buy salt from the British at a price set by them.

The British actually organize what is called the “state monopoly”.

In fact, in the history of mankind, salt has always been an essential product because it was the only way to store food. In the economies of the time, salt occupied a particularly important place.

Exchange currency, a source of income for the state, under the Roman Empire, salt was used to remunerate labor (hence the word “salary”).

That’s why controlling salt has caused wars and popular uprisings. The unfair salt monopoly symbolizes colonialism and pushed the Indians to protest with this “salt march” led by Gandhi. However, this was not appreciated by the British who severely repressed the movement. Gandhi spent 9 months in prison, but in the end he won the battle: the Indians could finally collect their salt and begin the path to independence.

Working Less, Could it Save the Planet?

A study by the University of Massachusetts states that “working less is good for the environment”. If we would spend 10% less of our time at work, our footprint on the earth would be reduced by 14.6%, mainly thanks to the decrease in travelling and daily expenses.

There are two contradictory theories on this idea:

wages may remain unchanged and the economy would continue to grow thanks to the technological and energetic improvements despite the reduction in working time; this theory explains us that pollution could be reduced thanks to the change in daily habits, such as the preparation of your own meals at home instead of buying food already prepared or prepared by others;
only by reducing wages we will achieve a significant reduction in the ecological footprint by 2050. This is the theory of degrowth that supports the fact that only with less money available the consumption of material goods can be reduced and consequently there will be a corresponding reduction of the pollution and use of resources. In practise, it means that by working four days, you would receive a salary equivalent to four days.

I would like to focus on degrowth because I support this approach. It seems clear to me that by continuing in this way the human kind will encounter a rapid depletion of available resources which will cause a sudden and uncontrollable decline of the population and of the productive capacity of the industries. The degrowth theory is certainly radical and to some it seems heretical. However, an OECD report says that consumption has increased by 50% in the past 30 years and that this goes hand in hand with an increase of the environmental footprint. The degrowth theory stipulates that a progressive decrease in consumption should begin by starting with a reduction in working time.

Serge Latouche, economist among the founding fathers of the degrowth theory, explains that degrowth does not mean weakening or suffering. It rather means transforming the concept of consumption into that of use: I buy something because I need it, if it breaks I have it repaired ( or repair it by myself) and, at the end of its lifecycle, I recycle it. It also means shifting attention from quantity to quality. The result will be a materially responsible society.

Degrowth is also a praise of slowness and duration; learning from the past; awareness that there is no progress without conservation; indifference to fashions and ephemeral; draw on the knowledge of tradition; not identifying the new with the best, the old with the outdated; do not call buyers the consumers , because the purpose of purchasing is not consumption but, as I said before, use.

So why working less and earning less? If the consumption for leisure or pleasure activities would increase thanks to a shorter working week, there would be a significant increase in the ecological footprint. This is why the reduction in working time must be accompanied by a reduction of wages. However, we would have more time for us, to dedicate to our personal growth, which does not only mean fun or leisure activities.

The crucial choice of our times, therefore, is between urgently committing ourselves to embark on the path of sobriety at all levels or going at full speed towards the depletion of resources and the global collapse of our system, which nobody hopes for.

In these difficult times, with the rapid spread of a virus that threatens our lives and frightens us, we could seriously begin to reflect on a different future for us all.

What do you think about it? Would you be willing to work less, gaining less and consuming less (but using more), thus starting a path towards a more committed society, different from the way we know it today?

A Free Rider

June 1929, on a beach in the Eastern United States. A yellow plane was about to take off for France. On board, three airmen wanted to try the first French crossing of the Atlantic, without a stopover, from West to East.

But the plane could not really take off. It seemed heavier than expected… And for a good reason: there were not three people on board, but four!

Arthur Schreiber, a young American, joined the three men without being invited to participate in the trip. To lighten the plane, the crew was forced to throw in the water the bottles of champagne they had planned to drink upon arrival!

Arthur dreamed of flying but could not become a pilot. Then he acted as a “free rider”, inviting himself in a flight where he was not supposed to.

In economics, a free rider is a member of a group that benefits from a service or a public good without contributing. To simplify it, it is for example the friend who comes with you on vacation and eats a lot, but never helps to cook.

According to the economist Mancur Olson, free riders are not bad people. They make a rational calculation to benefit from public resources or services of a communal nature without paying for them or paying less.

In economics, this means that in order to achieve a common objective, we cannot trust only the individuals. A collective or central authority (State, Police…) is needed to ensure that no one abuses.

For example, when it comes to the environment, it may be easy to say that others will make all the efforts (selective sorting, responsible consumption, etc.) and we sit back waiting for things to improve. Therefore, we do it by law, or others’ opinions!

What about you? Have you ever been a free rider?