Ferderer optimistic about economy

By Sidney Ainkorn

Economics professor Pete Ferderer offered an optimistic view of the current financial crisis in his talk “Is the Economy Heading for a Depression? A Minskian perspective” on Jan. 29. The lecture focused on the theories of economist Hyman Minsky whose views on the inherent instability of the market were once dismissed, but in light of the current state of the economy are being reexamined.

Ferderer explained Minsky’s assertion that booms and busts follow each other. Having previously enjoyed a period of economic stability the time has come for a downturn according to Minsky. Not only that but the cycles are proportional, in other words, “the bigger the boom the bigger the bust,” Ferderer said.

According to Minsky’s Financial Instability Hypothesis, “over periods of prolonged prosperity the economy transforms from financial relationships that make for a stable system to financial relations that make for an unstable system.”

Stability is destabilizing since it leads to more reckless behavior, Ferderer said. He offered concrete explanations for the crisis including the destabilizing stability and “financial innovations” such as securitization, the resale of mortgages by banks, and debt-default swaps, in which risk is transferred to companies who then threaten to go bankrupt.

“This is a rough period, but in the end I am quite optimistic,” Ferderer said. The last slide in his presentation bore a smiley face, grinning as if in anticipation of the next theoretical economic boom, which stayed on the screen throughout the question and answer session.

Though the talk was an alumni event, current Mac students filled plenty of the chairs in JBD, taking advantage of the extra credit offered in some Econ classes for attending the lecture. Still, it was the alumni in the audience who stayed to ask questions and voice concerns.

An audience member asked why the stimulus went to “pinstripe types on Wall Street.” Another asked if the banking system was broken.

Ferderer responded that the system was under stress. On the topic of regulation he said that “some people were asleep at the switch.[and] if people saw the world through that [Minsky] lens,” they may have been more aware of dangers.

At another point Ferderer said, “I think Minsky would argue that the U.S. government is a Ponzi scheme,” but added that the government can raise taxes to increase the cash flow, and printing more money is in fact a good thing, unless it triggers inflation.

“He seems to have optimism we’re all looking for,” David Dvorak ’52 said afterward.

Judith Sims ’76, had a more cautious response. “It was reassuring. Kind of.