Paul Krugman: Stiglitz, Minsky, and Obama:
The president came down pretty much for what we might call a Stiglitzian view… debt was driven by rising inequality…. What’s the alternative? Minsky: debt exploded because the Great Depression was receding into the mists of forgetfulness… lenders and borrowers--enabled and encouraged by financial deregulation--forgot the dangers of leverage. Personally, I’m more of a Minskyite than a Stiglitzian… [but] Elizabeth Warren’s old work on bankruptcy pretty clearly shows that at least some families took on excess debt as a result of rising inequality. But I’m inherently suspicious of any story that makes economics a morality play in which all bad results come from things you consider bad for other reasons too….
There’s a danger in the Stiglitzian approach, namely that people might conclude that fixing the short-run shortfall in demand must wait until we fix the long-run problem of inequality, which is going to be very hard and a long time coming. We need stimulus, or at least an end to austerity, now, even if restoring a middle-class society isn’t going to happen any time soon.
I wouldn’t make too much of these differences; in practice Stiglitzians and Minskyites agree on what should be done,and it’s good to see the president finally talking about the right things. Still, it is interesting to see where he put his emphasis.