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Katie Caldwell, Marketing Executive Volterra

Some Surprises - But Not Many

The Budget this year was perhaps the most leaked ever: a far cry from the occasion when a Chancellor was sacked for blabbing Budget secrets.  Only the changes to allowances now being dubbed the 'granny tax' really provided much surprise which is perhaps why the journalists have fallen on them with such glee, though the detail may be less impressive than the headlines.

Overall, this was a neutral, steady as she goes, affair with much tinkering and re-announcements, and promises of more substantive stuff to come.  Those who compared this budget with the confusions and sleights of hand in Gordon Brown's Budgets have some justification, although the Red Book is still a lot clearer than in his day.

And there was one announcement which pleased me very much.  As a Commissioner for the Public Services Trust 2020, I strongly argued for the benefits of tax transparency and that people should have a clearer explanation of how their taxes were used, particularly in relation to the services that they consume.  And the Chancellor has picked up this idea and is going to implement it.   This may seem a small step but bringing the scary and incomprehensible billions down to the scale of the tax payer themselves will give a much more informed and realistic debate about value for money.

I was also pleased, but without the frisson of surprise, at the reduction in the top tax rate.  Although 45p is still higher than in most other leading countries and is even higher when national insurance is taken into account, this is a step in the right direction for enterprise and even the tax take itself.  Having helped in garnering support and letter writing on the matter, it was nice that HMRC confirmed that not much tax is actually being raised by hiking top rates.

Of course, the cut is being balanced by rises in the tax on high value property which could bring to an end the surge in prices across central London, but the constraints on supply may be more effectively bolstering prices than the tax in denting them.

There is nothing wrong in a boring budget with no surprises in a time of uncertainty and wobbling growth.  The OBR has opined that government finances remain on track.  the balancing act between cuts and taxes may just be about right.

Bridget Rosewell

21st Century Policy Development





21st Century Policy Day - the Breakfast Panel!

   I spoke last week at a fascinating day on how policy development needs to be rethought, organised by Synthesis of which I am an Associate. The day made clear that both the techniques now available to us (computer modelling, simulation techniques) and our understanding of the elements of our problems (dynamics, feedbacks, behaviours, networks) suggest that we are making as big a policy shift as when big government first became fashionable in the twentieth century.

Then people believed, from the Webbs to Gordon Brown, that government could solve all our problems and make us be happy. Now we are more sceptical of these claims, even though we are starting to measure happiness, and of our government’s ability to devise and execute appropriate policies. Hats off to Matt Hancock and Jesse Norman, MPs who supported last week’s conference and opened and closed it with their own perspectives.

My own contribution to the debate was from my engagement over the couple of decades with infrastructure projects. I found it hard to stop grinning when the Chancellor, in his Autumn Statement, stated that infrastructure supports economic growth, since this is a case I have been making for more than a little while. However, the analytical underpinnings of this argument and how it relates to both the financing and the funding of projects is still not well articulated or understood and I talked about some of these issues in relation to investments that I have been involved in, such as Crossrail, High Speed rail, Thames Gateway Bridge (and more).

Successful policy development requires several different perspectives and this was illustrated in the context of security policy as well as infrastructure. Generating the right analysis is one essential element, but asking the right question is an important starting point, and getting support across the spectrum for a new approach is also key. The right analysis has to address the right question. ‘Is this railway worth paying for?’ is a good question and leads to asking who will pay for it and why. Is it passengers? Or property developers? Or does the taxpayer have to cough up for something unspecified, such as a welfare benefit?

Clear questions also require clearly articulated answers and the challenge to analysts and modellers is to provide models that policy makers can understand and challenge. Models cannot capture everything – by definition they are simplifications. Are the simplifications the right ones? Outcomes are inherently uncertain. Can the model show the likely range of outcomes with any degree of robustness? Our policy makers need to ask these questions of analysts rather than rely on a black box and their academics and civil servants.

There is a risk that one set of black boxes will be replaced by another set – cleverer ones no doubt. I hope not. I myself try to present arguments that have a common sense element but can be backed up by data and models. I need policy makers and politicians to challenge me and everyone else to make sure I succeed in creating these so that we can have a healthy policy debate rather than a technocratic one.

Bridget Rosewell, Partner at Volterra

Photo credit: © Zarina Holmes / Synthesis ISP

High Speed 2 – What Can We Know?

Henry Overman, in the most recent issue of Centre Piece, the journal of the Centre for Economic Performance, concludes that he is sceptical of the benefits of the proposed High Speed line, because the opportunity cost is high. He wonders whether this is the best way to spend government money and if there are more effective projects.


This is a conclusion that is very seductive and needs careful examination. A series of smaller projects, invested over shorter periods, offer more certainty about both their costs and their benefits. They will not be game changers and can therefore be analysed in the context of ‘business as usual’. The Eddington review also came to the conclusion that sets of smaller projects had better ratios of benefits to costs.

The proponents of large projects therefore need to be clear both about their own assumptions and those on which the conclusion above is reached.

In the UK, we undertake extensive cost benefit analysis to reach conclusions about the value of investment. These are based, as Overman points out, on values of time about which it is possible to argue both about values and the ability to work on a train. He comes to no conclusion on these issues – although they are key to the comparison of cost benefit ratios of projects by which one might conclude that small projects are better.

The opponents of High Speed 2 have, after all, made great play of the proposition that it is not ‘worth’ £17bn of taxpayer funding to save 20 minutes in getting to Birmingham. I would agree that if this were the only argument, then it does seem a rather expensive toy.

Overman goes on, however, to point out rightly that the bigger argument about HS2 is about getting to Manchester, Leeds, Sheffield and Newcastle – and indeed points further North – quicker. The argument is really about growth. This is dismissed by Overman as likely to promote growth in the South as readily as in the North. If increased growth is desirable, this might not matter of course, but in fact we know that cities with the fastest employment growth have also seen the fastest growth in rail trips and we know that better and quicker trips attract more travellers. Overman’s dismissal seems to me to be premature, especially when this is such an important part of the case.

I am disappointed that someone who has sat on the HS2 analytical challenge panel has not made some more fundamental challenges. In a stable economy we might choose to invest in transport to save people time, or to give them more pleasant journeys. When the economy needs to change and grow, we are investing for quite different purposes – to make it possible for cities to reinvent themselves and reach new markets. So we cannot compare ‘small’ projects designed for the former purpose, with large projects designed to foster growth.

The Jubilee Line Extension did not pass the cost benefit test. But Mrs Thatcher decided to build it anyway, and now it is full and has been essential to getting Docklands regeneration off the ground. Growth, anyone?

Sorry Henry – get more challenging.

Bridget Rosewell, Managing Partner Volterra

The 50p Tax Rate and Writing Letters

The Daily Telegraph inferred on Monday Feb 27th that the 50p tax rate was bringing in less than expected since income tax receipts are not rising alongside other taxes. This is potential confirmation of the proposition I and others made last summer in a letter to the Financial Times. In the letter, we argued that such a tax would do more harm than good, damaging innovation and entrepreneurship and deterring mobile workers.

I was involved in canvassing economists to sign the letter and indeed appeared on various radio and television shows to support the argument. Now it appears that the evidence on our forward looking argument may well have been right.

Nonetheless the tax exists so what was the point of such a letter? Certainly not simply so that we could say ‘I told you so’ later. Rather we hoped to influence the terms of the public debate on these matters and make it possible to defend lower tax rates. Who knows, it might even be possible to defend bonuses!

Not everyone agrees that economists should write letters to the papers. Alan Manning, professor of economics at the London School of Economics, thinks that such letters are all about how many signatories a letter has rather than its content. So he thinks there should be few signatories, and that a letter must provide ‘serious evidence’. This seems to mean waiting until the damage has been done, rather than warning of potential for damage.

It is true of course that economists can hold themselves above the fray, never coming to a conclusion until the evidence is overwhelming – although I have never encountered an economic proposition with which reasonable economists all agreed. On the other hand, if an economics background and training is useful, it should be useful in the policy debate. And if a group of economists draw attention to a concern that they share, this seems to me to be a useful thing to do.

Professor Manning thinks that such letters undermine the reputation of economists. I’m not sure with what constituency since most people think our reputation is pretty low anyway. Perhaps engaging sensibly with sensible debates on which opinions can vary and evidence be ambiguous might be a way to raise it.

Bridget Rosewell, Managing Partner Volterra

Post-Crisis Economics

A conference last week brought together a variety of economists from academia and policy to discuss what changes the discipline should produce post the financial crisis and what changes should be made to degree studies.


There was probably a consensus that micro economics had made more progress than macro in recent years and that students should be taught more economic history (and possibly the history of economic thought), but beyond this there was perhaps insufficient willingness to engage in setting out the principles of the subject. John Sutton suggested that we would only be able to say we had a proper subject discipline when we could say that 95% of a textbook was true – when I asked the audience later to say whether they thought even 50% was true, no hand at all went up. I hesitated to try and find out whether there was any percentage a majority would have signed up to! I did wonder whether we should run an auction to decide the agreed proportion – an area where there is probably a consensus that progress has been made – but didn’t have any rules to hand.

If teachers and practitioners are unclear what truth there is in basic teaching, what can the subject be about? One teacher suggested it was about ‘thinking like an economist’ which I defined as considering incentives, balancing costs and benefits, asking about market failures. This is certainly how the distinction feels in public policy. Of course, this has nothing to say about whether equilibrium is a useful concept, or whether maximisation is possible.

John Kay stressed that different problems would need different approaches and modelling techniques and that economics was too often a technique in search of a problem. Andy Haldane drew attention to the importance of networks in many markets and how standard economics made no allowance for the impact of one market participant on another. But the group did not really focus on these approaches, and I think largely prefers to consider how adjustments can be made to the existing approaches to maintain as much as possible of the canon – even though it is not true!

Hardly anyone referred to learning from other disciplines, whether anthropology, biology, psychology, philosophy or history, although many of these are making contributions to how economies work. A particular contribution comes from physics as Paul Ormerod pointed out.

Of course there are circumstances in which the standard model of independent market participants, able on average to build a good model of the market, in a rational way, will be a sensible approach. But there are many circumstances when these conditions will not hold. It was noteworthy that innovation, growth, and disruption got little coverage at the conference. What is the model for considering large scale investment which will change connectivity between markets for example? What about technical innovation which disrupts markets? These are the sorts of changes which have been a distinguishing feature of capitalism and which have made possible the standard of living, health and longevity we now enjoy. We didn’t discuss these and we must.

I think that the conference showed that economics continues to have good problems, and it has some good skills. But it still lacks a set of good theories and quite often lacks good data as well.

Bridget Rosewell, Managing Partner, Volterra

Co-operation and Competition

Ed Mayo, ex-head of the New Economics Foundation and now of Co-ops UK, has an interesting blog (read here) on the importance of co-operation in our economic system rather than competition. This is a really challenging and difficult topic.


Co-operation is extremely important to the successful functioning of the market-oriented economies of the West. But this is not because of co-operation as an organisational structure. The dominant form of corporate structure for over 100 years has been the shareholder-based joint stock company, and not organisations based on co-operative lines. But nevertheless, co-operation between firms is essential.

The most important reason for this is very simple. Complex economic systems contain many linkages between the different component parts. In an evolutionary context, we can think of a competitive relationship between two firms being expressed by a negative connection between them. If one does well, the other is likely to lose out, and its fitness is reduced. In contrast, a co=-operative relationship is positive. If one does well, the fitness of the other is increased, and vice versa.

Economic theory focuses exclusively on the competitive links. But these are dominated by the co-oerative ones. The structure of production is the reason why. Most economic activity does not involve the final consumer, the individual. It is business to business. So if a firm learns to produce something more efficiently, or if it innovates successfully, the companies to which it supplies benefit.

More generally, co-operation is needed to agree institutional structures in which economic activity can take place. And it is the basis of most contractual agreements. It is impossible to specify in complete detail most business-to-business contractual relationships – look at the massive difficulties caused by Brownite thinking on this in terms of the relationships between regulators and the regulated in the relevant sectors of the UK economy. A strong element of trust is required.

But all this co-operation, which pervades successful capitalist economies, has nothing to do with the organisational form of companies. It can, and indeed has, shown itself in a system dominated not by co-operative but by joint stock firms.

I have been interested in this for some time, and here is a very technical paper which examines what happens in an evolutionary system when most of the linkages are competitive and not co-operative.

Paul Ormerod, Managing Partner Volterra

The Folly of Wellbeing in Public Policy

The idea that Government policy should focus more on promoting wellbeing has been gaining support. Proponents of this view argue that happiness indicators have stagnated over decades because, they argue, governments have paid too much attention to maximizing a materially-based measure of economic welfare, Gross Domestic Product, rather than a more holistic indicator based on happiness.  This premise is clearly false.   Economics has undoubtedly been important in post-war political life, but it has not always been a decisive factor in determining the outcome of elections. Clinton’s Party lost the election in 2000 despite years of prosperity, Margaret Thatcher led the tories to re-election in 1983 despite the 1980-82 recession, and Tony Blair overwhelmingly defeated the Conservatives in 1997 after several years of strong economic growth. The fact is politicians do exhibit concerns over a wide range of issues where GDP is not the immediate focus.  For instance immigration and crime are two very live issues that no serious politician can afford to ignore. Yes, economics and economic policy matters to voters, but so do other issues, and it is wholly misleading to suggest that policy is focused solely on the maximization of GDP.    GDP as a concept has been criticized as it does not capture wider social and environmental costs and benefits within a society.  But the simple fact is that GDP was never intended to include them in the first place.  The purpose was to measure the value of the output of an economy, as far as possible using market based prices to do so. The question of measuring non-market output is conceptually different to that of happiness and well-being, but it is often confused with them in practice.  Namely:  Should we, and if so how, extend the concept of GDP to include more ‘non-market’ factors?   A wide range of adjustments to the basic measure of GDP have been suggested, such as weighting income by the degree of inequality, deducting the value of ‘bads’ such as time spent commuting, valuing work in the house, and so on.    However, the wellbeing movement goes far beyond tinkering with what is and what is not included in GDP. It suggests replacing it altogether with a measure which purports to describe not the material prosperity of a population, but its happiness.   Surveys on the levels of happiness reported by individuals have been carried out over a few decades in most Western countries. In general there is no apparent trend to be found, either up or down. Over the same period, average material standards of living (GDP per head) have shown a clear upward trend. This seems to support the old maxim ‘money does not buy you happiness’! The fact that measured happiness has not increased over decades is viewed by some commentators as indicating a flaw in our society which must be corrected through government intervention.  Indeed the lack of correlation between happiness and GDP is indicative of a similar non-trend across many other variables: expenditure, life expectancy, racial and gender inequality.  This suggests that attempting to improve the human lot through any policy – not just through pursuing economic growth - is entirely futile. Alternatively, we could conclude that happiness data over time shows little movement because it does not have much meaning.   When happiness is measured, people are asked to register their level of happiness on a scale of n categories (e.g. 1 = ‘not happy’, 2 = ‘fairly happy’ or 3 = ‘very happy’). Discrete categories mean that people have to undergo large discrete change in their happiness in order for this to be registered by the indicator so noticeable changes in average happiness can only come about through substantial numbers of people moving category. Furthermore the happiness data can exhibit no indefinite trend; in answering a survey in which levels of happiness are measured on an n-point scale, the data is therefore bounded between one and n. In contrast, at least as it is presently defined, real GNP can exhibit no upper bound.    More subtle recent work is in fact suggesting that there is a clear and positive connection between life satisfaction and income, and that there appears to be no cut-off point to this.  In a paper published in 2010 in the Proceedings of the National Academy of Science Daniel Kahneman and Angus Deaton distinguished two aspects of well-being.  First, life satisfaction, defined as the thoughts which people have about their life when they think about it.  Second, emotional well-being, which refers to the emotional quality of an individual’s everyday experience, the frequency and intensity of emotions such as joy, anger, sadness. The results of Khaneman and Deaton are striking.  Life satisfaction is unequivocally related in a positive way to income, but emotional well-being is not. In these recent studies, GDP does therefore appear to continue to have wider value as an indicator of a successful society, over and above its direct purpose of measuring material prosperity.   Despite such recent developments happiness advocates continue to insist that a single measure of happiness should be the only way of evaluating policy and progress. The problem is not merely that this lobby wants to replace GDP with a happiness index, it is the belief that by measuring happiness, it then becomes subject to prediction and control by policy makers. Of course, the fact that economics has made little or no progress in its ability to predict and control the macro economy might be seen to suggest that same fate awaits the happiness index and its devotees.  It is simply not possible to obtain systematically reliable predictions of aggregate happiness indices, any more than it is for GDP. We cannot predict with accuracy the next shake of a true dice, and neither can we do so for happiness.    Indeed, government attempts to increase measured happiness, rather than making life better for us, may well actually do the opposite: create arbitrary objectives which divert civil service. energies from core responsibilities; give many people the message that happiness emanates from national policy rather than our own efforts; and create pressure for Government to appear to increase an indicator which has never before shifted systematically in response to any policy or socio-economic change.   These are exactly the mistakes of the target-driven mentality which has come to pervade the British public sector.  We should learn from these rather than replicate them.   By Paul Ormerod. Read Paul’s full chapter on the subject in the recent IEA publication …and the Pursuit of Happiness available here.

Recessions as Collective Action Problems

In a blog on Keynes and Hayek I mentioned that I viewed recessions as collective action problems. In this blog I want to expand on what I mean by this because it makes all the difference for economic policy. It also contextualises our conventional demand management approaches, namely fiscal and monetary policy.

To build up the hypothesis, it is necessary to dip our toes in to a number of fields of study. But let us start with some empirical evidence and build the conceptual framework from there.
In his study of decision-making in the financial system, set out in his book Minding the Markets, Prof. David Tuckett from UCL interviewed 50 investment managers and analysed how they made decisions under conditions of uncertainty. Here I will take Prof. Tuckett’s conclusions and apply them to the phenomenon of recessions.

Prof. Tuckett explained how investment managers used narratives to help them make sense of the past, present and future. The amount and complexity of the information and the high degree of uncertainty they have to deal with can be staggering. So they develop narratives – mostly sub-consciously – to form what seems to be a cohesive pattern of understanding. This is also true of people in everyday life.
This is very different to conventional economics where “rational expectations” dominate. In this conventional approach, people are typically fully informed, have a particular (unchanging) model of how the economy works, and use these to determine their expectation of some variable in some fully predictable future.
By contrast, in reality people use narratives – again, subconsciously most of the time – in complex environments and these narratives can include some expectation of the future. People also typically have a sub-set of the information required to make decisions in their daily lives and, in complex social systems, the future is inherently uncertain.

Narratives form an important part of our framing of some situation or object but that is not to say they displace conscious analyses of the economy. The two are not mutually exclusive: narrative formation can involve a complex interplay of the conscious and sub-conscious aspects of the brain.
Narratives are also formed in part through social interaction. We listen to what others have to say: they influence us and we influence them, both at the same time. This important point means we are compelled to think of social systems as “Complex” (meant in the formal, Complexity theory sense), with people continuously interacting and co-evolving. The concepts of emergence and global cascades are useful for understanding how narratives are “exchanged”, how they spread, and how a particular narrative might become a “consensus” view among a group of people.

With these micro and system-wide points in mind, my argument is that recessions come about when a dominant narrative emerges within society, leading to behaviour that is consistent with a recession subsequently arising. If people believe a recession is likely, or imminent, they tend to behave “prudently” with respect to both consumption and investment. An important point is that the narrative of a recession and how people respond to that narrative make a recession both inevitable and self-fulfilling. In more technical language, there is “time-consistency” between the narrative-expectation and people’s behaviour.
An important difference between a recession narrative, which leads to a recession, and traditional theory is that in the latter, an economy is typically expected to gravitate toward some future full-employment equilibrium. For example, the models used by central banks (the terribly-named Dynamic Stochastic General Equilibrium models) normally show economies necessarily recovering following a recession. But if the consensus narrative is one of recession, and remains there, it is plausible that an economy can remain in that state, i.e. a “depression” narrative could emerge, reinforcing the slump. Alternatively put, a depression could be viewed as a sub-optimal equilibrium in a complex system.

I refer to recessions and depressions as collective action problems because they arise out of the collective action of agents in the system, operating in a way that is consistent with self-interest but which result in outcomes that are detrimental to all. An analogy is the Prisoner’s Dilemma game in game theory. As is famously known, the outcome in the Prisoner’s Dilemma is sub-optimal for both prisoners. If they could collude (a form of collective action), they could achieve a different outcome that is preferable for both. But this outcome is contingent upon the collusion being viewed as credible by both prisoners: some mechanism is required.

Now let’s turn to the policy implications of treating a recession as a collective action problem. In traditional macroeconomics, the mechanisms used to mitigate recessions (fiscal and monetary policy) are viewed as managing the overall level of demand in the economy. But if the narrative approach above is accurate, are these traditional tools of demand management sufficient for bringing about a recovery? Not necessarily.
What is crucial is the impact these policies will have on people’s narratives about the economy, not only their impact on “aggregate demand”. How these changed narratives influence individuals’ behaviour is another important question. A key point is that the overall impact of people’s changing narratives concerning an economy can dwarf demand management policies. A second key point is that narratives seem to be formed through an emergent process, which means prediction and control are highly problematic.
It is for this reason that I am sceptical of orthodox Keynesian approaches that imply a mechanistic view of the economy, whereby people adjust – deterministically – to macro management policies. Narrative formation is much more complex than that. Indeed, my colleague Paul Ormerod noted in November that the US appeared to be enjoying an expansionary fiscal contraction. This is possible if narratives change in favour of a recovery, leading to recovery-consistent behaviour by individuals, despite a fiscal contraction.
However – and this is a big however – demand management policies can and do influence narratives. But they should be viewed as one of a complex set of influences on how people view the economy, including its future.

UK GDP Growth (Source: ONS)

Before concluding, it is worth noting that these points relate to the fiscal policy debates of 2008-2010. During those debates the conventional Keynesian and Conservative perspectives were wheeled out. Keynesians said the fiscal deficit had to be expanded to counter a contraction in private demand; and Conservatives emphasised prudence to inspire “confidence”. A narrative-based framing shows that the Conservative perspective was not as unreasonable as Keynesians argued: we can re-state “confidence” through a narrative framing in stating that a prudent approach might inspire a shift away from a recession narrative to something more optimistic. But there is also a reasonable argument that a fiscal expansion might have inspired a recovery narrative. We will never know. What is clear is that we need to understand better how narratives emerge and perpetuate and how they can be influenced, including (if at all) by governments.
To conclude, I suspect that to those people not trained in conventional economics, this all sounds blindingly obvious. I would like to think that is because I started with a look at research based on empirical evidence, albeit based on the world of finance; and because I mixed this evidence with appropriate and cutting edge concepts from the new field of Complexity theory. But a lot more work needs to be done to deepen this framework, including by the academic community.

By Greg Fisher, Managing Director of Synthesis - associates of Volterra

HS2 gets Traction

Justine Greening has announced this week that HS2 will go ahead – which is enormously welcome. It is still surprising how many people have fallen for the proposition that is will be an expensive white elephant. Even the leader writers of the Financial Times have been captured by the Nimbys and the naysayers.
The fact remains that the long distance rail system is creaking at the seams. The West Coast Main Line is one of the busiest railways in Europe and managing its maintenance, even after its refurbishment, is a nightmare. The southern end, with massive commuter use, already needs more capacity. So we don’t just need HS2 to meet projected growth – we need it here and now.
Running infrastructure too close to capacity is risky, just as we see at Heathrow. This has to operate at 98% capacity, so that the slightest thing that goes wrong means lengthy trouble and hours to get the system back into normal running.
But the extra capacity will generate additional benefits. Accessibility is crucial to modern economies. With globalisation and the fact that cities are the focus of growth, intercity connectivity will be a key element in maintaining the UK’s economic performance. Our work for the Core Cities has shown that city centre growth will both generate and be generated by extra trips.

Bridget Rosewell

Minsky Mania: a Raincheck

The American economist Hyman Minsky is currently very fashionable, especially amongst those who are sympathetic to the idea of more government intervention in the economy.
Minsky argued that financial crises were an inevitable feature of capitalism, unless governments stepped in through regulation and central bank action.
He hypothesised that in prosperous times, when the corporate cash position became strong, exuberance developed which translated into a speculative bubble in asset and property markets. Private sector debt rose as borrowing increased to fuel the speculation, and at the ‘Minsky moment’ a crisis would occur. Following this, banks tighten credit, and even companies which are fundamentally sound may be driven out of business because of an unwillingness to roll over debt.
His theory is very seductive in the light of the experience since 2007.
But the theory does not explain why, over the past 80 years, we have only had two major financial crises, the early 1930s and the recent one from 2007. It is the dog which has not barked which causes fundamental problems for the hypothesis as it stands.
For example, in the United States, private sector debt relative to the size of the economy reached a peak of 2.1 in 1932. From a low point of only 0.4 in 1945, it rose almost without interruption to a new peak of nearly 2.2 in 2001. But there was no crisis. It reached 2.6 in 2006, much higher than its peak in the 1930s Great Depression. But again, no crisis.
The Minsky story is good at telling us after the event what happened in a crisis. It does not tell us why crises do not happen, even when the objective facts suggest they should.

Paul Ormerod